Upping the Ante: Civil Service Rules and State Contracting

The Michigan Civil Service Commission, headquartered in this Lansing office building, is a key player in Michigan privatization successes.

Changes to Michigan public policy during the Engler administration have run from the mundane to the dramatic. One dramatic change is the accelerating trend of contracting with private businesses to perform duties previously performed by the state. Depending on the outcome of a challenge to a new state civil service rule, however, the privatization trend may be cut short.

Some state-monopolized businesses have even been sold off wholesale, and the results have been promising. The sale of the Michigan Accident Fund, which was a state-owned workers compensation insurer, reaped taxpayers a $255 million windfall. The privatization of state services shifted duties away from the politicized public sector and toward the market-driven private sector.

The Michigan Civil Service Commission (CSC) is a key player in the state’s privatization successes. The CSC is responsible for setting the wages, hours, and working conditions for some 65,000 state employees.

Under Article XI, Section 5 of the Michigan Constitution of 1963, the CSC is granted plenary powers (sole powers which are rarely reviewable by the judicial branch) to award personal service contracts. The Commission is not subject to the review of either the legislative or executive branches of government. These broad powers make the Michigan Civil Service Commission unique in the country.

Personal service contracts are contracts that involve the performance of services for the state, but not the sale of goods. Currently, the CSC must approve all personal service contracts for more than $5,000, but it declines to assert power over so-called "mixed contracts" that involve both services and the sale of goods (where the predominant purpose of the contract is not the furnishing of services to the state).

In 1993, the CSC implemented a regulation that allowed independent contractors to perform work for up to 36 months without running afoul of civil service guidelines. A coalition of unions including the UAW, AFSCME, and AFL-CIO and their local counterparts challenged this regulation. In July 1997, after nearly four years in the courts, the CSC regulation was ruled constitutional by the Michigan Court of Appeals, and the unions’ suit was dismissed, making it easier to contract for services that need not be directly performed by the state.

In May 1997 the CSC approved changes to the 1993 rule that would revise the system for granting personal service contracts. Under the proposed changes, the state department directors were empowered to approve contracts for less than $500,000 (as opposed to the previous $5,000 threshold) provided they could meet certain stringent requirements. One such requirement was showing a need for "temporary, intermittent, or irregular personal services."

The Michigan Civil Service Commission (CSC) is a key player in the state’s privatization successes.

The CSC would remain the controlling authority regarding contracts for personal services to the state in excess of $500,000. Decisions to contract for amounts less than $500,000 would be left to state department directors.

By raising the dollar threshold from $5,000 to $500,000 for department approval and expanding civil service review of mixed contracts, the CSC rule would permit departments to more efficiently contract out services and it would guarantee that these departments be held account-able for all contracts.

Although the CSC has become the state’s collective bargaining agent since civil service workers were granted the power to col-lectively bargain in 1980, it has also been charged with assuring that Michigan’s state employment is a system based on merit. Awarding contracts based on merit is critically important in preventing a political spoils system; however, union rules tend to keep work in-house and thereby subject to seniority-based, rather than merit-based, pay schedules.

Whether collective bargaining can harmoniously coexist with a system based on merit has been frequently debated. The most recent skirmish in this debate has come in the form of another union challenge, this time to the 1997 rule change. Ingham County Judge James Giddings has temporarily prevented the rule from being implemented. Once again, union opposition to rules that facilitate merit-based contracting highlights this strained relationship between mandatory collective bargaining and good stewardship of the public purse.

Neither the executive nor legislative branches can interfere with the implementation of merit principles under the Civil Service Commission’s constitutional authority. Unfortunately, it appears that Michigan unions are capable and willing to delay—however briefly—sound policies designed to save money, improve service, and make government more accountable to the citizens it serves.