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Privatization: Recent Developments (1997)

THE COURTS

Key decisions limit jurisdictions from contracting out public services. At the federal level, the U.S. Supreme Court ruled that private contract employees are not protected by the same immunity as public employees. At the state level, the state supreme courts in California and Hawaii ruled that states must comply with their existing state constitutional or civil service rules that limit contracting out. Although these last two cases have limited applicability to other states, the decisions strongly suggest that statutory or regulatory language can be a useful strategy in combating privatization.

RICHARDSON vs. McKNIGHT

In June 1997, the U.S. Supreme Court ruled that employees of private prison companies are not entitled to the immunity that is applied to public corrections employees. State and local corrections employees are generally protected from being sued for performing their job as long as their conduct does not violate "clearly established rights that a reasonable person should have known." The court held, however, that employees of private companies are not shielded by the same immunity.

Corrections Corporation of America (CCA), the company involved in the case, stated publicly that this decision will not impact their costs because high insurance liability was already built into their fee schedules. This suggests, however, that if the decision had gone the other way, CCA would be able to submit lower bids. As it stands, privatization, which proponents argue will reduce the costs of providing services, may in fact increase costs as indemnification or hold-harmless agreements between jurisdictions and private vendors may not be enforceable, and the ultimate liability for the provision of public services remains with the jurisdiction.

PROFESSIONAL ENGINEERS IN CALIFORNIA GOVERNMENT vs. DEPARTMENT OF TRANSPORTATION

In May 1997, the California Supreme Court ruled that the state’s Department of Transportation (Caltrans) could not contract out engineering and inspection services. The court based its decision on the fact that the state did not prove that civil service personnel were "unable to perform work ‘adequately and competently.’" The court held that under the Constitution, Caltrans had not only failed to complete the necessary analyses to ascertain whether public employees could do the job, but it also neglected to show whether or not the state would save money.

KONNO vs. COUNTY OF HAWAII

In a recent unanimous decision, Hawaii’s Supreme Court recently held that the County of Hawaii’s contract with Waste Management, Inc. to manage the county’s landfill was a violation of the state’s civil service system. The court ruled that the landfill contract was work that had historically been performed by civil servants and that Hawaii’s civil service law protected "those services that have been customarily and historically provided by civil services." HGEA and UPW, our affiliates in Hawaii, are using this decision to stop or prevent the contracting out of other public services.

COMPETITIVE REVIEW/BENCHMARKING

Performance measurement or "benchmarking" is on the rise. In benchmarking, jurisdictions develop measures of efficiency or effectiveness for particular services and compare themselves to other public and/ or private providers. Analysis of the results, often called "gap analysis," guides decision-making regarding whether to keep the service in-house, engage in public/private competition, or privatize the service outright. Competitive review and benchmarking can provide the union with opportunities for input during the decision-making process, or at least additional lead time.

Local 127 (Council 36) recently negotiated a six-year cost accord with the San Diego Wastewater Treatment Department. The city and the union reached an agreement on the competitive price of water treatment by using a cost model developed for the U.S. Environmental Protection Agency. In this cost model, the treatment process of numerous facilities is divided into component parts, productivity measures are averaged at each stage of the process, and comparisons are then made between the facility’s component parts and the industry’s averages. The local must meet these standards within two years. During this time period the city cannot contract out the services.

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