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This Week’s Outsourcing Scan 6-01-2015

Update: Upcoming Outsourcing Issues. June 1, 2015

1) National: The Department of Labor has proposed guidance to assist contracting agencies and contractors to implement President Obama’s fair pay and safe workplaces executive order. The guidance covers disclosure of contractors’ workplace violations. “The proposed guidance and regulations build on the existing procurement system, and most federal contractors will only have to attest that they comply with laws providing basic workplace protections; for those contractors that report violations, designated Labor Compliance Advisors will coordinate with the relevant enforcement agency experts to help them come into compliance.” The public comment period ends July 27. [Comment here]. “In addition, prospective contractors would have to report on their compliance with state laws that the Labor Department defines as equivalent to the federal laws enumerated in the executive order. Once awarded a contract, an employer must update its violations history every six months (102 FCR 162, 8/5/14).” [Bloomberg BNA, May 27, 2015; sub required]

2) National: In a “striking shift,” incumbent federal contractors “are losing major recompete contracts two-thirds of the time this year.” Restructuring of services contracts may be one reason. [Bloomberg Government, May 28, 2015; sub required]

3) National: As part of the National Action Plan for Contracting Reform, the Project on Government Oversight proposes 8 steps to improve government contractor transparency and promote responsible contracting:

•    An improved Federal Awardee Performance and Integrity Information System (FAPIIS) database.
•    Publicly Release Contracting Documents
•    Post Contractor Past Performance Reviews on FAPIIS
•    Publicly Release the DoD Revolving Door Database
•    Publicly Disclose Contractor Political Spending
•    Publish an Annual Report on Defense Contracting Fraud
•    A requirement for the government to inform FOIA requesters that specific contractor information has been withheld or redacted
•    Ending Dun & Bradstreet’s control over how the government uses DUNS data

4) National: First Research, Inc. estimates that the U.S. bus transportation industry, including FirstGroup America (which owns First Student, First Transit, and Greyhound) has revenues of $20 billion. “Large companies can have advantages in buying fuel and in maintaining fleets. Small companies can compete by providing specialized services. The urban, school, interurban and rural bus transportation segments are highly concentrated. The charter and special needs transportation segments are fragmented.”

5) National: Corrections Corporation of America and the GEO Group are to make presentations next week at NAREIT’s REITWeek Investor Forum in New York. CCA recently released a 52-page First Quarter 2015 Investor Presentation.

6) National/Michigan: Prominent municipal finance analyst Kristi Culpepper criticizes Detroit’s selection of Jones Day as its restructuring counsel. “Ethical procurement practices are an important part of government operations and maintaining the trust of taxpayers and investors. Government officials should avoid direct conflicts of interest, any appearance of impropriety or favoritism in selecting any individual or firm to work with. The City of Detroit should be especially sensitive about how its procurement practices are perceived. given its history of corruption. I do not believe Detroit’s selection of Jones Day as its restructuring counsel met the above criteria. The firm should have been disqualified due to its connection with [Emergency Manager Kevyn] Orr.” (p. 12)

7) Arkansas: Corrections Corporation of America’s lobbyists wine and dine officials to try and drum up business in the state. “Roberts GR Strategies, the lobby firm that threw last night’s dinner (which Sen. Jeremy Hutchinson said would be dutch treat after I questioned its classification by him and Rep. Matthew Shepherd as a ‘planned activity’ of a governmental body and thus exempt from the new no-freebie constitutional amendment) employs Gov. Hutchinson’s son Asa III and also has former Gov. Mike Beebe on its roster of colleagues. I like their chances of getting a hearing. Public private partnerships. You know how they work, right? Public taxpayers provide the money. Private interests pocket the profits, after overhead for lobbyists, steak dinners,  big salaries, etc.”

8) Arkansas: The state is to issue public general obligation bonds to finance the building of a Lockheed Martin plant. “States regularly utilize various tools to lure companies within their borders, such as tax abatements or low-risk conduit bonds. But Arkansas’ plan to sell general obligation bonds to fund construction of Lockheed’s new facility is more uncommon. In the case of default, the state would be responsible for paying bondholders.”

9) California: Monterey County opts to make a careful study of project delivery options for dealing with the overcongested Highway 156. “The TAMC board is moving ahead with a study of the situation, although the path it’s moving on is slower than it might be. At its meeting last week, the TAMC board voted to move ahead with a preliminary study on the situation rather than committing immediately to a public-private partnership.”

10) Colorado: Municipal leaders intend to press ahead with providing high speed public broadband despite competition from the private sector. “Roiniotis said he isn’t worried about the viability of NextLight in the face of the increased competition. For one thing, he believes there’s still no competition for the price at which the city is offering its gigabit speed. In fact, he added, he’s happy to see the incumbent providers in Colorado responding positively to the threat of competition from municipalities by increasing their own services rather than suing municipalities, as has happened elsewhere in the country.”

12) Florida: Palm Beach County tightens its rules on charter schools. The school board now requires charter school applicants “to disclose any prior history with failed schools and prove they offer innovative programs. New schools will also be prohibited from opening near a traditional public school serving the same grades. ‘What’s the purpose of building another public school next to an existing public school that doesn’t offer anything different?’ asked board member Frank Barbieri. ‘These big chains that are moving into town, they are definitely not providing anything in the way of innovation that isn’t already being provided very well by our public school system.'”

13) Georgia: The state labor department is hiring 400 bus drivers and monitors for MV Transportation in Savannah, at $13.25 an hour. The district hired MV Transportation to take over in  July “after continued problems with First Student.”

14) Indiana/Illinois: Environmental groups sue to halt the controversial Illiana Expressway “public private partnership,” claiming that environmental reviews required under federal law were conducted using “faulty information and didn’t adequately consider environmental impacts. (…) Critics said the public private partnership will leave taxpayers on the hook if toll revenue falls short. Illinois and Indiana have suspended work on the project pending a cost-benefit review.”

15) Illinois: Keeping Taste of Chicago public instead of privatizing it turns out to be a winner. Innovative and creative public management turns the festival around. “Taste of Chicago turned a $272,000 profit in 2013 for the first time in six years—thanks to a recipe that included perfect weather and a popular music line-up. It marked a nearly $1.6 million turn-around in just one year for a lakefront showcase that, some feared, was headed for the scrap heap.”

16) Kentucky: The state government contracts with NIC to launch a new “mobile-friendly” Kentucky.gov. “A new helpful feature is geocoding, or using a person’s current location.”

17) Louisiana: The privatized University Medical Center in New Orleans will need another $25 million to open, “increasing the amount the state needs to pay private operator LCMC Health to $113 million.” With the state budget still up in the air, it is uncertain that LCMC will receive the money. “Without the money, there is a chance LCMC Health could walk away from its deal with the state to run University Medical Center, which it intends to open Aug. 1.”

18) Maryland: Prince George’s County contracts with Corvias to reduce pollution runoff that eventually ends up in Chesapeake Bay. “Meanwhile, a team of county workers will be ‘racing’ Corvias to build stormwater improvements. The county team will also have 2,000 acres to work on so that officials can compare the two approaches. That information will help the county decide whether to expand the public-private partnership. It will also help other jurisdictions decide whether they also want to try something similar.” The company is financing 30-40% of the costs, and “will be paid over the life of the agreement through stormwater fees on local residents and businesses.”

17) Massachusetts: Cambridge resident Bill Torcaso calls attention to the externalized costs to the taxpaying public of privately financed infrastructure, such as the proposed new toll bridge over the Cape Cod Canal. Of the increased traffic, he writes, “those people will get to the toll bridge on public roads. The toll payers will not have paid extra for the existence of, say, Route 3 southbound from Boston, but they will increase the traffic burden on that road. This disadvantages everyone who travels on Route 3 southbound. In economics, this is known as an externalized cost; profits would go to the bridge’s investors, but they would not pay all of the costs. This is the practical flaw in all such public-private partnerships.”

18) Michigan: Deloitte’s Michigan managing partner sees Israel as a model for the state’s development efforts. “We can’t replicate what Israel is and does, but I believe there are components of that that are relevant to us as it relates to talent, to immigration, to the university system and public-private partnership environment. That should allow us to take some of those ideas and use it as one of the catalysts we’re looking for. I’ll be taking 15 CEOs in November on the first-ever Michigan CEO mission to Israel.”

19) New Hampshire: Supporters of a commuter rail line from Boston to New Hampshire will press on after a defeat in the state senate. “Michael Izbicki, chair of the New Hampshire Rail Transit Authority, says he plans to press forward and explore a public-private partnership to fund the project. The Nashua and Manchester chambers of commerce support the rail project.”

20) New York/New Jersey: The Port Authority selects a Skanska-led team to replace the main terminal at LaGuardia Airport. The deal assumes that using a “public private partnership” structure “will be able to shave a total of one year off construction time than if the Port Authority handled construction.” NJ.com reports that “a firm demolition and construction schedule doesn’t exist because a contract to run the terminal for 35 years has to be negotiated first.”

21) North Carolina: Widen I-77 asks the judge to proceed with a jury trial in its case against the DOT’s “public-private partnership” agreement with concessionaire I-77 Mobility Partners. The organization wants the interstate to be widened with free lanes. [Sub required]

22) Ohio: The Beacon Journal finds that charter schools misspend millions of dollars of taxpayer money, in part because the underfunded state auditor’s office has “farmed out most charter-school audits to private accounting firms.” Last year, “these private firms found misspending in one of the 200 audits of charter schools they conducted, or half of 1 percent, while the state’s own police force of auditors found misspending in one of six audits, or 17 percent of the time. ‘You don’t even have to understand audits to know that something is broken there,’ said Kyle Serrette, director of Education at the Center for Popular Democracy.”

23) Ohio: The Vandalia-Butler City Schools Board of Education, pointing to First Student’s poor job at engaging stakeholders in its outsourced bus services, gives permission to its superintendent to open negotiations with Community Bus of Youngstown. “Part of the request for proposals included that our local drivers got the first opportunity at positions.” [Sub required]

24) Ohio: Cleveland Mayor Frank Jackson is looking for outside private funding to help pay for reform of the city’s police department. “The U.S. Department of Justice started investigating the Cleveland Police Department in 2013, concluding in a report last December that the department used unreasonable and sometimes unnecessary force. Cleveland has reached an agreement with the DOJ that avoids a long, expensive court fight. But, “Everything has to be paid for,” says Steven Dettelbach, U.S. attorney for the Northern District of Ohio.”

25) Rhode Island: A Providence charter school teacher has been put on leave after becoming a whistleblower. “‘We’re cutting AP classes, we don’t have after school programs. We used to have tutors from Brown and Providence College, no more. We were the first school to ban electronics, and now that’s been reversed,’ said Johnson. ‘Were parents even informed of these changes? We used to be the alternative for kids who didn’t go to Classical. And none of our elected officials have expressed any concern.’” School officials deny the allegations.

26) Texas: Winfree Academy Charter Schools are downgraded by Standard & Poor’s to BB-minus. “The downgrade reflects our assessment of Winfree’s continuing enrollment declines with a highly transient student population, limited operational flexibility, and a decline in liquidity.” [Sub required]

27) Virginia: Transportation Secretary Aubrey Lane says that the decision to use a traditional public procurement method for I-66 improvements was made easy by the disastrous experience with US 460. The state’s costly blunder in choosing a “public private partnership” method for procuring the uncompleted US 460 has forced a rethink of P3s by the public sector. Layne, a Republican, says privatization industry experts completely outmaneuvered state officials, who were themselves ardent boosters of the P3 procurement model. When officials shifted back to a public procurement model in midstream, the model’s tougher standards “didn’t kick in,” and oversight standards were abandoned. Then-governor Bob McDonnell and his ardently pro-P3 transportation secretary Sean Connaughton nevertheless pressed forward with the project, which has cost the state $250 million for a road that never got built.

28) Washington: Pending changes that would require charter schools to observe the same financial accountability rules for taxpayer money as regular public schools are denounced by the right wing, ALEC-linked, Koch-funded Washington Policy Center, as a “regulatory power grab.”

29) Think Tanks: The pro-privatization Reason Foundation issues reports on recent trends in prison privatization and the privatization of state assets and services.

30) Revolving Door News: Shelley Triol, a spokeswoman for the Indiana Department of Administration, becomes Gov. Pence’s communications director. “She is the second new staffer in as many weeks. Matt Lloyd, Pence’s longtime congressional communications director and a former spokesman for Koch Industries, took over last week as Pence’s deputy chief of staff for communications and strategy.”

31) Revolving Door News: The Securities and Exchange Commission hires Andrew J. “Buddy” Donohue as its chief of staff. Donohue “has been managing director, associate general counsel, and investment company general counsel at Goldman, Sachs & Co. in New York, where he was primarily responsible for legal matters related to its registered investment companies.” SEC chair Mary Jo White comments that “his deep knowledge of asset management will be especially useful as the Commission advances its rulemaking agenda.”

32) Upcoming Event: The National Charter Schools Conference, New Orleans, June 21-24, 2015, hosted by the National Alliance of Public Charters Schools. Sponsors include the Walton Family Foundation, Charter School Capital, the Eli and Edythe Broad Foundation, Pearson, Houghton Mifflin Harcourt, and PiperJaffray.

Legislative Issues:

1) National: The U.S. Public Interest Research Group, Public Citizen, the Center for Effective Government, Consumer Action, and the Coalition for Sensible Safeguards line up behind S 1109, which would bring transparency to federal agencies’ out of court settlements. “Confidentiality provisions are still permitted under the bill, so long as agencies issue a public statement about what public interest is advanced by keeping a settlement confidential and why those interests outweigh the public’s right to know. This explanation does not require approval from any other body. In sum, confidentiality is wholly permitted under the bill, but requires explanation, a safeguard which will help ensure against using confidentiality purely as a way to avoid public accountability.”

2) National: Sen. Ron Wyden (D-OR) is pushing for legislation that would create a new type of bond to attract private investment into financing infrastructure. There would be no interest subsidy, as there was for Build America Bonds. “Move America bonds created by the bill would encourage private investment, Wyden’s office said, by excluding interest income from the alternative minimum tax and by doing away with government ownership requirements that would typically apply to tax-exempt facility bonds, as long as the projects are available for public use. (…) Private partners would be able to benefit from depreciation deductions, should they take ownership of the facility or enter into a long-term lease, Wyden’s office said.” The legislation is supported by SIFMA and the Associated General Contractors. [Bloomberg BNA, May 28, 2015; sub required]

3) National: Rep. Norma Torres (D-CA) introduces legislation to create regional clearinghouses for “public private partnership” ventures. “Local and state governments would receive funding from the multi-state organizations for feasibility analyses and preliminary design work needed to get a project off the ground, she said. The centers could also match appropriate public infrastructure with interested private investors. ‘Passage of another short-term extension of the Highway Trust Fund made clear that our communities cannot rely on government alone to fund the nation’s roads, bridges, and water facilities,’ Torres said. The centers would be modeled after the West Coast Infrastructure Exchange, she said.” [Sub required; HR 2485]

4) Connecticut: Legislation that would spur the outsourcing of municipal dispatch centers is pending in the General Assembly. “[Danbury Mayor] Boughton noted that the city of Waterbury is already looking at the possibility of privatizing its dispatch center. ‘The legislation that’s been proposed could probably drive a lot of this, and would result in long-term savings for the communities that adopt the model,’ he said.”

5) Illinois: Democratic lawmakers block Gov. Rauner’s efforts to privatize the state economic development agency. “Rauner’s representatives objected to putting a sunset clause on the privatization plan in order to monitor its success, according to Steve Brown, Madigan’s spokesman.” It is unclear if Rauner will accede to the demands for transparency and revive the plan.

6) Michigan: Legislators pass a bill to allow a private prison near Baldwin to reopen, and send it on the governor’s desk for signature. But they voted down an amendment that would have prevented GEO Group from accepting Michigan prisoners. “Critics say it’s wrong to have private companies and guards securing dangerous inmates, and the move could be a foot in the door to further privatization of Michigan’s prison system, a path they say has so far been paved with failures. They also say GEO has a spotty record in other states and in Michigan, where its predecessor prior to a name change, the Wackenhut Corp., operated the youth prison near Baldwin.” Vermont plans to send prisoners to the facility.

7) New York: New York corporate leaders, including JP Morgan chairman Jamie Dimon and BlackRock CEO Laurence Fink, line up to back mayoral control of New York City Public Schools, which is set to expire this month and is being used as a political wedge by some lawmakers to force the expansion of charter schools. “We also support expansion of the number of charter schools that can be established in New York State, but suggest this expansion should be approved on the merits, rather than as a political trade-off for mayoral control.”

8) Pennsylvania: In the budget, Gov. Wolf proposes restructuring payments to cyber charter schools. “As a fix, he proposes giving cybers a flat fee of $5,950 for each student—far less than the per-pupil spending of any traditional school district in the state. The proposal, which is part of Wolf’s comprehensive plan to boost state education aid, would take about $160 million out of the $400 million now sent to cyber charters, and redirect it to traditional schools.”

9) Utah: Democratic state lawmakers are to introduce legislation to cut all of the state’s ties with private prison companies. “The lawmakers said the board and Department of Correction have done an excellent job of taking over the Idaho Correctional Center near Boise that was previously run by Corrections Corporation of America.”

10) Wisconsin: The nonpartisan Legislative Fiscal Bureau reports that a Republican plan for private school voucher expansion could divert $600-$800 million from public schools over the next decade. “At a news conference to release the memo, [Assembly Democratic Minority Leader Peter Barca] called the cost estimate ‘eye-popping’ and said it could spell the beginning of the end of public education in Wisconsin.”

11) Wisconsin: Gov. Walker’s budget seeks to remove the cap on vouchers for private and religious schools, and sneaks in the ALEC “special needs” voucher bill at the last minute. Jon Peacock of the Wisconsin Budget Process says “I’m especially concerned about the harm to our K-12 education system caused by initiating a formula that will steadily siphon off funding from public schools to finance private school vouchers. The erosion of support for public schools districts and deep cuts to the University System are distressing blows to public education, which historically has been the key to Wisconsin’s economic success.”