Outsourcing in the Public Eye

Public-sector HR outsourcing provides some different challenges than outsourcing in the private-sector -- and adding to the difficulty is the highly transparent process.

Wednesday, March 1, 2006
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Governments outsource the same types of human resources work as private-sector companies, but the process is often quite different, outsourcing experts say.

"Public sector is a different animal to administer," says Leslie Scott, manager of the National Association of State Personnel Executives, based in Lexington, Ky. The key difference is an environment driven by service delivery instead of competition -- a dynamic that encompasses complex rules on jobs and sunshine laws that put almost everything in the public eye.

"There's a lot more transparency in general, so there's a lot more perceived risk" in [public-sector] outsourcing, says Marc Pramuk, an HR outsourcing specialist at the Everest Group, a Dallas-based consulting firm.

To mitigate this sense of risk, providers must convince a slew of stakeholders -- governors, procurement officials, legislatures, unions and others -- that outsourcing makes political as well as business sense.

"It is a very convoluted, lengthy sales process," says Glenn Davidson, president of EquaTerra Public Sector L.L.C., a subsidiary of outsourcing advisory firm EquaTerra. "Unlike in the commercial world, where the CEO can make a decision and commit the company, that's not the case in government."

Election cycles can also delay things when new officeholders come on board. Often a new round of relationship-building and persuasion is needed for deals to proceed, says Chris Emerick, vice president of operations for Convergys' Employee Care division.

Governments are especially sensitive to the issue of jobs, which are often lost or transferred as a result of outsourcing. Influential labor unions fear job losses and dilution of their political power. State officials must move aggressively to calm fears and bolster outplacement.

Unlike the private sector, "offshore delivery is politically unacceptable" in the public sector, Davidson says. To promote jobs and economic development, governments prohibit contractors from offshoring and even require work to be done in the same jurisdiction. For example, the state of Florida moved most of its HR work to privately run call centers in Jacksonville and Tallahassee.

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Another difference between the public and private sectors is the degree of scrutiny given to outsourcing contracts and their implementation. "No one's going to write about how Dow [Chemical Co.] processes COBRA," says Aon Consulting Senior Vice President Lurline Craig-Burke, but in government, "if you make a mistake, everyone's going to know about it."

For months, Florida newspapers wrote about various missteps in the state's transition under an HR outsourcing contract with Convergys Corp. Erroneous paychecks, employees dropped from health insurance, allegations of offshoring -- state officials read it all in exhaustive detail.

"It's a little more cumbersome," Emerick says. "You have to engage everyone who's going to be instrumental to your success."

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