Publications

Alternative Service Delivery (1997)

"Alternative service delivery" is a term used to describe the use of private firms, community or nonprofit groups, volunteers or individuals to deliver public services. The use of alternative approaches to the traditional delivery of public services by public employees is not new, but it is a practice that is receiving an increasing amount of attention as part of the reinventing government movement.

While AFSCME has long fought against the displacement of public employees, the focus has usually been on contracting out, where a public employer hires a private contractor to deliver a service, with the contractor taking over the day-to-day management of the operation as well as using its own employees to perform the work. While this continues to be a common practice, alternative service delivery approaches also encompass other ways of involving private companies or individuals in the delivery of public services. Some of these mechanisms are put in place by employers as a means of displacing labor, and are thus opposed by AFSCME and other public employee unions. Others are a product of negotiations between management and labor aimed at protecting the jobs of public employees.

Service Contracts, Franchise Agreements and Asset Sales

Contracting out continues to be the most widespread and harmful alternative to traditional public service delivery. The most prevalent method of contracting is the purchase of a service contract, where a government agency pays a fixed price to a private firm or nonprofit organization to provide a specific service. Citizens, through taxes or user fees, pay the government which in turn pays the contractor. The contractor manages the work process and work is performed by the contractor’s employees. For public employees, the primary threat is that of displacement — public employees are laid off, transferred, or forced to go to work for the contractor when a public service goes private. Virtually any service can be a target of contracting out. Janitorial and grounds maintenance, institutional food services, school bus transportation, and recycling are examples of services that are frequently delivered on a service contract basis.

Franchise agreements differ from service contracts. Rather than paying the contractor a fixed price to deliver a service, the government agency instead gives a contractor the right to provide a public service and the consumers of the service pay the provider directly. Although the financial arrangements are different, the threat to public employees is the same. Services that are often delivered in a franchise arrangement include food and beverage concessions, solid waste collection, public utilities, airport operations, vehicle towing and storage, and emergency medical services.

Finally, "true" privatization occurs when a government sells an asset to a private concern. Unlike service contracts or franchises, when an asset is sold it is gone forever — it is not re-bid or renewed at certain time intervals, and thus there are no future opportunities to bring the service back into the public sector. Thus, the public employees performing the work are threatened with permanent displacement. Attempts to sell off government assets have involved infrastructure (such as water treatment plants, public utilities and airports) as well as "non-essential" operations such as golf courses. Also, the health care industry has been hit hard by restructuring and privatization of public facilities.

Service contracting, franchising, and asset sales are three methods of privatization that AFSCME affiliates encounter frequently. While AFSCME is a leader in the fight against the dismantling of the public sector through these practices, at times privatization is inevitable despite our opposition. In order to continue protecting the interests of the workers involved, AFSCME affiliates are now "following the work" into the private sector through successorship agreements or by organizing contractor employees. For example, AFSCME Council 93 recently won a representation election for school bus drivers employed by Laidlaw Transportation in Plymouth, Mass., joining several other AFSCME affiliates around the country that have contracts with this company.

Management Services Contracts

With a management services contract, a public agency hires a private contractor to manage an operation, but retains the employees. The contractor is responsible for overseeing service delivery, and in many cases provides equipment and training, and makes staffing decisions. Through this type of arrangement, a government agency can conceivably benefit from the expertise of the private sector while avoiding the labor displacement issues that can plague other types of contracting.

One company, ServiceMaster, is well-known for this type of arrangement for custodial, landscaping and energy management services. This company touts itself as an efficiency expert and, through the terms of its typical contract, has a financial stake in keeping labor costs down. Essentially, labor costs are subtracted from the total price of the service, and the company keeps the difference. ServiceMaster has its own brand of equipment, its own supply deals, and its own training programs. The company’s managers set up shop in the contracting agency, and supervise the public employees doing the work. Under such an arrangement, the government agency is still the employer and the parties to the existing collective bargaining agreement do not change, but the company’s influence is nevertheless felt.

Management services contracts have several drawbacks for public employees. First, what is touted as "efficiency" is often downsizing. Large staffing cuts are usually built into the company’s proposal when it seeks to obtain a management services contract. Second, most of the savings from "efficiency improvements" (where they are realized at all) go back to the company in the form of salaries for their managers and profits. Finally, private management companies usually have little knowledge of or regard for the terms of existing collective bargaining agreements, resulting in the deterioration of labor/management relations and an increase in conflict.

In order to fight against management services contracts, it is important to carefully scrutinize the company’s proposal, which is often the product of a free "efficiency study." This proposal should be examined for hidden costs, escalators, staff reductions and other flaws. For example, in a recent pitch to the Harford County (Md.) School Board, ServiceMaster proposed a large reduction in custo-dial staff, a switch to using the company’s equipment and supplies, and the introduction of a new energy management system. AFSCME representatives and line managers from the school district analyzed the proposal and showed how money saved from reducing the custodial staff would be offset by cost increases to pay for ServiceMaster managers and the additional office space they would require. In the end, the school board decided not to contract with ServiceMaster.

In the event that a private company does take over the management of a public service, removing it requires an activist approach. In Shorewood, Wis., the school district contracted with ServiceMaster. The union (AFSCME Council 48) countered with a comprehensive campaign of resistance including flooding the employer with grievances, documenting every management error, picketing the school board, and employing other tactics. The company was eventually removed. ServiceMaster and Marriott had supervised employees in several Ohio school districts for many years. OAPSE/AFSCME Local 4 eliminated this practice through negotiations and political action.

Employee Leasing

Similar to management services contracts, employee leasing is an arrangement that is designed to protect the employment status of employees involved in a privatization situation. While management of an operation is contracted out, the employees remain on the public payroll but are "leased" to the contractor. For example, last year the Florida legislature dissolved the Florida Department of Commerce and shifted funding and responsibility to Enterprise Florida, Inc. At AFSCME’s behest, the legislation included a provision for the leasing of state employees to the private organization. While over 200 employees were placed elsewhere in the state government, 12-16 employees, mostly managers, were offered the lease option.

Similar arrangements have been used in the water and wastewater industry. In Easton, Pa., where U.S. Water has a 10-year contract to operate water and wastewater plants, the employees have remained city employees with a 10-year "no layoff" guarantee. U.S. Water also has a five-year contract to operate Jersey City’s (N.J.) Water Department. Jersey City employees continue to work in the department, and the company reimburses the city for their work.

In the recent merger between the University of California (UC)-San Francisco and Stanford University hospitals, AFSCME Council 57 negotiated an employee leasing arrangement for about one-third of the affected employees (those who were 50 years old with at least five years of service, 40 years old with 10 years of service, or with 15 years of service regardless of age). These employees were able to retain their status as UC employees and be leased to UC-Stanford Health Care (the new company). They will remain part of the UC-San Francisco campus bargaining unit but will work for the new employer as leased employees. Thus, they retain their advantageous pension and benefits package, as well as their status as UC employees and bargaining unit members. The remaining employees (those ineligible for the leasing arrangement) will keep their seniority rights and leave balances, with an option to cash out carried- over vacation or comp time upon conversion to UC-Stanford Healthcare employees. Council 57 is currently in negotiations for a contract that will cover these employees in the future, and is planning an organizing drive targeting the employees from Stanford, which was non-union prior to the merger.

Employee Ownership

Employee ownership through ESOPs (Employee Stock Ownership Plans) can be found in the private sector. For example, United Airlines is a unionized, employee-owned company. In 1994, United’s unions agreed to a recapitalization plan that gave employees a 55 percent stake in the airline in exchange for wage and work rule concessions worth $4.9 billion over six years. At the time, the company was having a financial crisis and needed to make a radical change to ensure its long-term viability. Rather than eliminating thousands of jobs, the airline and its unions crafted the employee buyout.

The notion of employee ownership is very rare in the public sector, but it is an idea that is being discussed more frequently. The general idea is to form an employee-owned company and contract out a service to that company, with the affected public employees becoming owner-employees in the new enterprise. One case where a public service was contracted out to an employee-owned company took place last year in the federal government. An office that conducts background investigations for the Office of Personnel Management (OPM) was transformed into a private, employee-owned operation, U.S. Investigative Services, Inc. To launch the new company, OPM selected (through a competitive process) a bank, an investment banking firm, and a law firm with experience in ESOPs to act as trustees. USIS was given a three-year contract which will be competitively re-bid at expiration. The American Federation of Government Employees (AFGE) at first argued against the privatization scheme, but when it was apparent that the privatization plan was going forward despite their resistance, AFGE worked to obtain the best possible terms of employment for those moving to the new company, and outplacement assistance for those electing not to take jobs with USIS. In May 1996, RIF notices went out to 706 members of the OPM investigations staff. Within 24 hours, all of these employees received job offers from USIS, at comparable pay and benefits. Of the 706 employees, 681 accepted employment with the new company.

Independent Contractors

The business community has long been in favor of changing long- standing laws to make it easier to classify workers as "independent contractors" rather than regular employees. Employers seek to classify workers as independent contractors in order to have more "flexibility" and to avoid paying Social Security and Medicare premiums, unemployment insurance taxes, or workers compensation premiums. Furthermore, "independent contractors" are considered self-employed individuals, and thus not covered under labor relations laws that grant workers collective bargaining rights.

A recently proposed provision in the tax bill would have eased the rules for determining who is an independent contractor, but it was defeated thanks to the efforts of organized labor. Nevertheless, this practice is already a significant problem for large numbers of workers. Like private companies, some public employers also use "independent contractors" to perform work that otherwise could be performed by public employees. For example, for years the state of Maryland has used "contractual employees" in a wide variety of jobs. State agencies have operated under personnel caps that limit the number of regular employees they may have, so they hire contract employees to augment their "official" workforce. These employees perform the same work as the official employees, but do not receive benefits or civil service protections. AFSCME is currently bargaining for improvements for these employees.

In the Milwaukee County Department of Social Services, employees were offered early retirement packages and then hired back with personal service contracts. Local 64 (Council 48) fought against this practice using contract language and a state statute restricting the use of contract employees. The local prevailed and the county stopped using the independent contractors.

In California, about 200,000 home-care workers are classified as "individual providers" by the state. These workers, who provide in-home assistance for the elderly, are typically paid minimum wage and receive no benefits. Even though they submit time sheets to the counties and receive their paychecks from the state, they are considered to be employed directly by their clients. Needless to say, union organizing is next to impossible within this framework. The AFSCME-affiliated United Domestic Workers (UDW) represents the home-care workers who are employed by private and nonprofit agencies, but these workers perform only a fraction of the home-care services overseen by the county — the majority is done by individual provid-ers. UDW’s strategy has been to pressure the counties to increase the number of cases handled by the agencies and thus reduce the use of the individual providers.

Contingent Employees, Volunteers and Other Non-Bargaining Unit Personnel

The use of "contingent" workers is a practice that is growing throughout the economy. Temporary or limited-term employees can either be hired out of an agency or employed directly by the jurisdiction. In either case, prolonged use of temporary employees can be an employer strategy for gradually reducing the "core" workforce. For example, four out of every 10 health care workers are contingent, a figure that has been increasing in recent years. Historically, hospitals have always used registry or agency employees to augment their core workforce at times of high volume. However, as changes in the administration of health care has caused inpatient volume to shrink, hospitals have sought to reduce their core workforces and shift to greater use of contingent workers.

The use of volunteers or other types of non-bargaining unit personnel (such as inmates or workfare participants) to perform work alongside regular employees raises concern about the excessive use of cheap or unpaid labor as a substitute for bargaining unit jobs. As states scramble to meet the work requirements in the welfare reform law, the full impact of the influx of 1 to 2 million welfare recipients into the workforce has yet to be felt but is coming soon.

Many AFSCME contracts have language that protects the integrity of the bargaining unit and/or addresses the use of contingent workers, volunteers and other non-bargaining unit personnel. At the state level, the master agreement between Council 31 and the state of Illinois provides that "the Employer recognizes the integrity of the bargaining unit and will not take any action directed at eroding it" and that "the Employer will continue to endeavor to assign bargaining unit work to bargaining unit employees. The hiring of temporary or emergency employees to supplement bargaining unit employees’ work on a temporary basis ... shall not be considered erosion of the bargaining unit."

In addition to language protecting the integrity of the unit, the agreement between Council 25 and the state of Michigan regulates the use of "student work experience programs, patient/employee programs, JTPA program employees, volunteer programs, or seasonal recreational programs of the kind currently employed in Agencies in this Bargaining Unit. The primary purpose of such programs shall be to supplement ongoing activities or solely to provide training opportunities." The clause also protects against the use of such employees in an agency with an active recall list, to avoid recalls, or to provide vacation relief.

At the municipal level, the contracts between Councils 33 and 47 and the city of Philadelphia provides that: "The City shall notify the District Council before beginning a program to use volunteers, probationers, or parolees, members of the National Guard or other armed forces, or other governmental agencies’ workforces to augment the current bargaining unit work. Such use shall not be considered as contracting out. Volunteers shall not be used to displace the bargaining unit workforce, nor shall volunteers be used to do work which otherwise would be done by the then-existing bargaining unit workforce. However, volunteers may be used to do work identical to the work done by bargaining unit employees so long as the volume of work done would exceed that which is being done by the then existing bargaining unit workforce."

In school districts, the use of volunteers is typically a long-standing practice that can be beneficial to a commu-nity. Nevertheless, appropriate contractual protections are needed to protect against abuse of the practice. For example a clause in the agreement between OAPSE/AFSCME Local 4 and the Parma City School District specifies that "the parties recognize that the use of volunteer workers in the schools is essential to good community relations. However, the Board intends to utilize volunteer workers on a supplementary basis and not to replace present employees."

Volunteer labor is also widespread in the health care industry. The contract between AFSCME/NUHHCE District 1199C and Greenwich Services Inc., covering licensed practical nurses, aides, ward clerks, and secretaries specifies that "no work currently performed by bargaining unit employees shall be performed by a volunteer" and provides for notification of all tasks performed by volunteers and informing all volunteers about the collective bargaining agreement and the policy of not substituting volunteers for paid employees. The clause also specifies that "additional work resulting from expansion or reorganization shall not be performed by volunteers if such work includes tasks or responsibilities performed by bargaining unit employees."

While controlling or limiting the use of contingent or volunteer workers is a strategy for protecting bargaining unit work, another approach is to organize these employees in order to bargain for livable wages and benefits as well as to provide a bridge from temporary to permanent employment. An example of this is the clerical/custodial pool in Council 13’s master agreement with the commonwealth of Pennsylvania. Created in 1991 in response to the employer’s increased reliance on temporary help contracts, the pool provides temporary clerks, typists and custodians to state offices. Contract language specifies that the pool cannot be used to reduce the number of permanent employees. Since the inception of the program, over 700 participants have been placed into full-time positions. Overall, the program has been an asset to Council 13 as it has allowed the union to exercise some control over the use of temporary workers, and has virtually eliminated private contracts for temporary clerical and custodial workers.

In 1995, Local 372 (DC 37) negotiated a Work Experience Program with the New York City Board of Education. A joint training and job placement program for workfare participants was established to provide a bridge to full-time employment. Participants receive specialized training sponsored by the board of education followed by one-on-one mentoring with Local 372 members. According to a recent report, 71 workfare participants had been promoted to permanent, bargaining unit positions out of a training population of 74, with 23 new trainees in the program.

The recently enacted federal budget contains $3 billion to support states’ efforts to put welfare workers to work. Roughly 75 percent of this money will be divided between the states through formula grants, with the rest being distributed through the Department of Labor through competitive grants. AFSCME is committed to working with the Clinton Administration and local government officials to design and implement programs that provide workfare participants with meaningful work opportunities and union benefits.

In Conclusion

These are turbulent times for AFSCME members. Today’s trends toward restructuring, reinvention and experimentation with new organizational structures can only be expected to accelerate in the future. As new means of delivering services evolve, employment relationships will change, and new mechanisms for employee representation will be necessary. The union’s involvement in structuring these new mechanisms is essential for protecting the interests of the workers involved. For more information on the alternative service delivery methods examined above, contact the AFSCME Department of Research and Collective Bargaining Services at (202) 429-1215.

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