The Top 30 Biggest State Contractors

The Top 30 Biggest State Contractors

 State spending on contractors has exploded over the past decade, doubling between fiscal years 2002 and 2012 and consuming more than 13 percent of all personnel costs, a GoLocalProv review of state budget records reveals.

Contractor costs are currently estimated at $268 million, $32.5 million over what was budgeted in this fiscal year. Contracting costs for architectural and engineering services have shot up 78.4 percent between what was spent in 2002 and budgeted for 2012. Education contracts have skyrocketed by 154 percent while management and auditing services are up 29 percent.

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“My goodness—I didn’t realize it was that drastic,” said Michael Downey, president of AFSCME Council 94, which represents about 4,500 state employees.

 

The top 30 contractors identified in a review of more than two thousand contracts account for more than half of that total, at $166.5 million. Nearly half of the top 30 contractors were hired through the Department of Transportation, followed by seven for the Department of Elementary and Secondary Education, and six for the Department of Human Services.

What caused the increase?

Some argue that the explosion of contractor spending undermines claims by conservatives that former Gov. Don Carcieri—who was in office for eight of the ten years examined by GoLocalProv—successfully lowered the budget. “It seemed to really explode when Carcieri started,” Downey said.

“I think you’re pretty much on target to say that Carcieri’s policies increased the use of contractors, but remember that once you lay off someone, there is a choice between hiring a contractor and just doing a bad job of whatever it is that person used to do,” said Tom Sgouros, a progressive blogger and former candidate for state Treasurer. “For the most part, the Carcieri administration seemed to be content with door number two, and so DCYF caseloads shot up, DLT call centers bogged down, DEM beaches didn’t get cleaned, and so on.”

However, it is hard to tell from the total cost of contractors whether the increase was needed to make up for staffing cuts, or was instead the result of changes in policies at departments like education, Sgouros added.

Downey said the Carcieri administration hired more contractors as a way of rewarding friends and skirting collective bargaining agreements, all the while making it appear that he was shrinking the size of state government by reducing the number of full-time employees.

 

“It was like a shadow government,” Downey said. “You can say ‘I got rid of 2,000 employees,' but yeah, you doubled the contractors.”

Tea Party: Contractors still save money

A spokesperson for the Ocean State Tea Party in Action, Lisa Blais, had another explanation: a one-time influx of federal money. “Many of the areas where dollars were spent appear to be for one-time projects with federal dollars, for example, roads and bridges and perhaps, Race to the Top,” Blais said.

“A lot of that is federal funds,” said Wayne Hannon, the deputy state budget officer. “There was a lot of stimulus funds that came in 2009-2010 that would have had an effect.” Some programs, he said, may have had to turn to outside contractors because they didn’t have the full-time staff to implement various federal grants.

“This is not about Carcieri, but about the necessity for a total quality improvement effort to deliver services as effectively and efficiently as possible,” Blais added.

Blais said that when the cost of contractors is compared to full-time employees, with their compensation packages and retiree benefits, contractors may prove to be cheaper. “We have no way to know if this would be the case but it is a reasonable issue to consider,” Blais said. “But, the massive OPEB [retiree health care] liability hovering in the billions of dollars outweighs an approximate $100 million increase over 10 years for out-sourced services.”

 

Downey maintains that state employees are the cheaper option. State employed plumbers, for example, have starting wages of $15 an hour and go up to $21 an hour. Contract plumbers, on the other hand, bill state agencies for $75 to $150 an hour, according to Downey, who worked as a plumber at the University of Rhode Island before becoming union president.

To be sure, the state employed plumber, unlike his private contractor, has a benefits package, but Downey said it does not equal $75 to $150 an hour.

Sometimes, training staff in-house can be cheaper over the long run, rather than relying on an outside contractor, Sgouros said. He pointed to the $9.7 million the Department of Human Services has contracted with Northrop Grumman Systems Corp. Years ago, the state hired a company to provide a software system for managing certain programs, including what is currently known as SNAP (food stamps) and TANF (federal assistance). Instead of acquiring the expertise to manage the program, the state has relied on the expertise of Northrop Grumman.

 

“They own us—they own us to the cost of $9.7 million every year and it’s crazy because you can’t get out from under this thing,” Sgouros said. “You’re completely at their mercy.”

Opposing sides of the debate seem to agree on at least one thing: when it comes to state contractor policies, not much seems to have changed under Governor Lincoln Chafee.

“It’s also worth pointing out that Governor Chafee is now mimicking Carcieri’s proposals to save municipalities on the brink of fiscal disaster while Carcieri proposed out-sourcing to save the state from its outrageous $8 billion-plus budget,” Blais said. (Downey pointed to the receiver appointed in Central Falls as an example of how the state is still spending too much on contractors.)

Who are the biggest contractors?

Topping the list of the top 30 biggest contractors is a company known as HP Enterprise Services, LLC, which is a division of Hewlett-Packard. The company administers the software system that processes six million payments annually to doctors, pharmacies, hospitals, clinics, and other health care providers in Rhode Island, according to company spokesman Bill Ritz, who is based in the DC office.

Like other states, Rhode Island is actually required by federal law to have an automated system for managing Medicaid payments—that system, must meet a series of strict federal standards, according to Beryl Kenyon, spokesperson for the Executive Office of Health and Human Services.

 

HP Enterprise Services meets that need for 21 states, making it the single largest provider of its kind of service in the country. Overall, its software system process a billion Medicaid payments nationwide each year, according to Ritz. “Of course there are efficiencies of scale on something like that,” Ritz said.

A similar idea is behind the number two contractor on the list, First Student Inc., which holds a statewide contract for busing in school districts. Negotiating one contract at the state level is more efficient that leaving it to individual school districts to work out their own contracts, Krieger said.

For the Department of Education, the remaining contractors are split between test-related services and consultants who have been hired through the Race to the Top program. For the Department of Transportation, which accounts for about half of the top contractors, almost all were hired for one type of service—engineering work. (A department spokesman was not able to respond to a request for comment in time for publication.)

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