Critics want cost-savings review before Tennessee outsources contracts

Gov. Bill Haslam (Erik Schelzig/Associated Press)

NASHVILLE - Critics of Gov. Bill Haslam's efforts to privatize most state building management services say the administration should complete a promised independent accounting review of claimed cost savings before engaging with potential bidders in an experimental process for developing government contracts.

Instead, beginning Monday, the Republican administration is doing both at the same time. Democratic lawmakers and a higher education union official say that's putting the proverbial cart before the horse.

"We're still waiting on a promised 'audit' from the governor's office that will prove that the claims they're making about savings could happen and [which] are not already being done efficiently and effectively by folks in-house who are public workers," Thomas Walker, a coordinator with the United Campus Workers union, said last week during a conference call with equally critical Democratic legislators.

The administration's Office of Customer Focused Government claims the state can save $36 million a year by outsourcing 90 percent of building management in general state government and higher education.

The state's real estate portfolio comprises more than 7,500 structures totaling 94 million square feet. Cleaning, repairing and operating them costs an estimated $550 million a year.

Locally, the shift could affect the University of Tennessee at Chattanooga; Chattanooga State and Cleveland State community colleges and Moccasin Bend Mental Health Institute.

While critics question why the KraftCPAs review and negotiations are occurring simultaneously, Michelle Martin, spokeswoman for the Office of Customer Focused Government, said officials are simply "gathering information through a multi-step, procurement process."

Participants include representatives from the University of Tennessee, Tennessee Board of Regents, legislative and "general government leadership," Martin said.

UT and Board of Regents officials are skeptical that contractors can operate more efficiently than they do already and have questioned some of the administration's figures, including energy cost savings.

Regarding the simultaneous processes of the independent review and discussions with qualified companies on how to fashion the privatization contract, Martin emphasized that "conducting information gathering activities concurrently does not mean a decision has been made nor does it obligate the state to pursue a final arrangement.

"It simply allows the state to continue to gather critical data needed to make informed decisions as good stewards of taxpayer resources," she added.

In last week's conference call, Rep. John Ray Clemmons, D-Nashville, and Senate Minority Leader Lee Harris, D-Memphis, said that given Haslam's past privatization experiments, which they consider failures, they have no confidence the current round will be any better.

"There's absolutely no proof that government will operate more efficiently, yet there's a track record of failed attempts," Clemmons charged.

He and Harris pointed to recent news accounts of large additional sums being spent on the state's outsourced motor vehicle pool and the well-publicized meltdown of a private vendor's rollout of online testing for Tennessee students.

But the administration likes to point to its 2013 outsourcing contract with real Chicago-based estate giant Jones Lang LaSalle. JLL now runs about 10 percent of the state's real estate holdings and contends it has saved the state nearly $13 million.

When it took control, however, JLL chose not to hire many existing state workers, a controversial move critics have brought up repeatedly. Bowing to pressure from lawmakers, administration officials earlier this year agreed to an independent review of their figures on the latest outsourcing proposal and hired KraftCPA to do the job.

Haslam has tried to remove another point of contention by requiring would-be contractors to agree not to lay off state workers, whose jobs will be transferred should contracts be struck.

The administration's "estimated time line" shows the KraftCPAs review of projected cost savings as well as the administration's project development process are occurring this month.

The United Campus Workers union says the administration's "collaborative value development" process starts today.

That process, also known as "vested" outsourcing, was created for the private sector and is new to government. And critics question that as well.

The concept is the brainchild of consultants Mike Ledyard and Kate Vitasek, who have written a series of books on their process and both now work under contract with the state.

In essence, "collaborative value development" involves would-be contractors helping shape the scope and details of contracts on the front end, before they submit an actual proposal. The state has pre-qualified several businesses but the administration hasn't identified them for now, waiting until the process is over and the contract awarded to one of the companies.

Critics like Walker are skeptical and point to an Oct. 1, 2015, letter from state Comptroller Justin Wilson to Terry Cowles, head of Government Focused Government.

The letter from Wilson, a Republican attorney elected by the General Assembly, raised a number of concerns. Primarily, Wilson questioned the interplay as the state studies a massive, statewide building service and management outsourcing project while also introducing a new contract development process.

Noting the process was developed for the private sector and the administration is adapting it to fit within state procurement laws, Wilson said it "is largely untested" in state government.

"We must look at this potential change as more than just a procurement," Wilson wrote, later adding, "we all must step back and ensure the fundamental [tenets] of government procurement are addressed."

"Is the process fair? Is the process transparent? Was there a level playing field?" Wilson wrote. "The answers to those questions should be clear, but I still have some questions that can only be answered by having seen the process work."

Wilson, who as a State Building Commission member was among members signing off on the JLL outsourcing contract, suggested the administration first try out the new contracting process on a much smaller outsourcing project where, he noted, "the risk is less."

Contact Andy Sher at or 615-255-0550. Follow on twitter at AndySher1.