Creative Contracting Saves Districts Money

Public school districts around the state are using private contractors in a variety of creative ways to provide nonessential services while saving money. The latest Mackinac Center survey, released in August 2006, found that 37 percent of districts contracted out for at least one of the three large support services — food, custodial or transportation.

For the most part, the decision to seek competitive contracts is driven by finance. A district’s ability to raise additional revenues for school operations is limited, and many of a district’s costs are locked in by collective bargaining agreements. According to many observers, school districts have historically paid little attention to the quality of the support services that they provide. They are in the education business, after all. Maintaining an efficient school bus parts inventory and developing cleanliness standards never fit within their mission statements.

Opponents of privatization often argue that contractors can provide district savings because they pay employees less than the schools do. In reality, savings are often realized because contractors across the state offer far more reasonable benefits to the district, not because they have the ability to exercise market control over wages.

Food service is a perfect example. Contractors provide cafeteria services to more than 150 districts in the state. Many of these contracts cover only the management of the district’s food services. In those cases the food service workers remain district employees, demonstrating that contractors can improve services even without addressing wages.

School food service is a regulated business. In addition to numerous regulations governing the food that students are served, the state also regulates the financial operations of the school’s food service program. If districts make money by selling meals in schools, that money must stay within the food program. By law, the school cannot use food service revenues to pay teachers, buy chalk or support any aspect of the district’s fundamental education mission.

"When you talk about savings, it’s a combination. It’s getting maximum participation in the district and paying less money on the food," said Rick Simpson, regional sales director for Chartwells School Dining.

Private food service provider Chartwells took over the Reese Public Schools’ food service in 2006. In the short time since then, the average daily meal sales have increased by 9.5 percent.

"Our kids are much happier with the food and the choices that they have," said Superintendent Storm Lairson.

Custodial service is a business of practices — that is, finding the best way to do a task. Developing, implementing and measuring the proper way to clean is important. But developing best practices takes experience and expertise. Sometimes, this involves spending a lot of time to save just a little money.

"In the private sector, we are tasked to save pennies," said one contractor. It can make sense for a contractor to find ways to save money and improve services in ways that can be implemented repeatedly.

Some districts simply do not have the capital to invest in the latest cleaning technology. When the Midland School Board looked to contract out custodial work, its service provider offered to bring Kaivac cleaning machines to replace mop, buckets and elbow grease when cleaning locker rooms and bathrooms. The company offered to invest $100,000 in equipment to service the district.

Private contracting allows costs to be contained over a long time period. Indeed, North Muskegon recently extended its custodial service contract for two more years at the same price as its first three years of service.

A number of school districts across the state contract out for student transportation. Like food services, there are economies of scale in purchasing buses, equipment, parts and fuel.

Contracting also helps to contain some of the liability associated with providing these services. Accidents happen and can be expensive if someone is injured. Districts must purchase insurance to cover their liability. Large national bus companies tend to be self-insured, producing more savings for school districts. Some districts contract out only for the transportation of special education students. In order to receive an education appropriate to their needs, these students have an individual education plan, which may require transportation between buildings and areas in a district.

For both transportation and custodial services, contracting locks the district’s costs in place, making financial operations more predictable. School business managers do not have to worry about increases in health insurance or pension costs. And contract costs are maintained for the length of the contract.

In some of these competitive contracting cases, the changes or savings may be small. Many of them are actions that districts can undertake themselves. Based on the example of school districts that have taken the lead, it is clear that others can find innovative and tailored ways to contract out and focus on the core mission of educating students.

James M. Hohman is a fiscal policy research assistant at the Mackinac Center for Public Policy.

Post a public comment on this.
View all comments on Mackinac Center articles.