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May 14, 2020

Ins and Outs of Outsourcing in Public Schools

In a preview of his presentation at the May 28 PICPA Pennsylvania School District Conference, Peter Amuso, a partner with Rudolph Clarke LLC, sits with us to discuss outsourcing in public schools. Particularly, he addresses the adding of Section 528 to the Public School Code, the effect on labor negotiations, and the benefits of third-party contracting.

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By: Bill Hayes, Pennsylvania CPA Journal Managing Editor



Podcast Transcript

On May 28th, at the PICPA Pennsylvania School District Conference, Peter Amuso, a partner with Rudolph Clarke LLC, will be telling attendees everything they need to know about outsourcing in Pennsylvania public schools. On today's podcast, he offers us a sneak peek in areas like the adding of Section 528 to the public school code, the effect on labor negotiations, the pros and cons of third-party contracting, and more.

Before we get into some of the deep details, why was Section 528 added to the public school code?

[Amuso] Listen, the question often is why does Harrisburg do anything? I think it's a pretty typical Harrisburg story. Somebody had an idea to make something simpler and then the other side had some ideas as well. Through the compromise and sausage-making process that is legislation, we're left with something that honestly, in the end, just adds to some complexity where there maybe didn't need to be before. I think the original idea was, and we'll talk about this during the conference, in order to outsource, traditionally in Pennsylvania, you needed to reach what's called an impasse in negotiations. That is, you get to a point where you feel like you can't negotiate anymore, that both sides have given their best offers and there's still a significant gap and there's nowhere else to go.

At that point, that's when a lot of school districts start thinking about outsourcing. The courts have really held school districts to that standard that there has to be a real impasse. There've been a lot of examples, and we'll discuss them in the course, about where courts have overturned outsourcing because they felt there really wasn't an impasse. I think the idea was, well, let's give school districts a process by which they can outsource. We'll lay it out in a statute and we'll give you several steps, and that way you'll know that you've outsourced properly. But through the process in the legislature, there's a series of compromises and, in the end, Section 528 makes it clear that it doesn't change any existing labor negotiation rules. In the end, it's really just added a second step to this whole process.

What does this mean for labor negotiations?

[Amuso] It really adds a second step to the negotiation process. It doesn't change anything with labor negotiations, which I think was its original intent, but it really just adds a second step. For labor negotiations themselves, the first step is always to look at your CBA, and some CBAs, that's collective bargaining agreements, allow for outsourcing in certain circumstances. I've seen CBAs that say you can outsource as long as no current members of the union lose their jobs. In that case, you don't need to negotiate the impasse. You just make sure that all current members will keep their jobs and then you can move to the Section 528 process. If it's a more traditional contract that either says you cannot outsource or is silent on the subject, then you still need to do that bargaining the impasse, and then you move on to the Section 528 process. So, it really adds a step to the process more than anything else.

Could you give us a little bit of background on non-instructional services provided by third parties?

[Amuso] I'm happy to and, it's funny, it's got an interesting definition that is not apparent from the term. I actually was talking to a colleague and there was a school district somewhere that tried to say, well, they had to follow the Section 528 process for solicitor services, for legal services, because that was non-instructional, and that's not the case. It's not the case because the statute defines it as services provided by someone whose terms and conditions are governed by a collective bargaining agreement. First of all, to be clear, Section 528 only applies to those workers or jobs that are governed by a collective bargaining agreement, that are unionized. If you're dealing with a non-unionized portion of your workforce, you do not have to go through Section 528. Certainly, there are no school solicitors anywhere who are unionized, so you do not need to go through the 528 process if you want to pick a new solicitor.

But that's really the key, that it's under the collective bargaining agreement. The other key is that it's not any professional services as defined in the school code. It never applies to teachers, mainly, and then certain kinds of school counselors and nurses. Then the last piece is third party, a for-profit third party, and this can be with school districts often use intermediate units for services, and you could have a situation where say, certain kinds of paraprofessionals you decide to use a service that your local intermediate unit has for that particular specialty, that would not fall under Section 528 because IUs are not for-profit entities.

When it comes to a section 528 process implementation, what's the standard timeline?

[Amuso] First of all, Section 528 has gone into effect. It was effective July 1st of 2018, but the key point is first you have to look at that CBA and to see whether you've got a bargain to impasse or not. Once you have, the key point is having this public hearing, and we'll go over the details of that, but the key is you really have to give 30 days notice for that public hearing, at the very least. That's really the key that you have to keep in mind is 30 days public notice for the public hearing and what you're going to talk about outsourcing. Everything else revolves around that.

What would you say are some of the pros and cons of third party contracting in Pennsylvania public schools?

[Amuso] Obviously, the big pro and the reason that we're talking about it, and we'll talk about it a lot in the coming year or two, is it saves money. That's why outsourcing exists outside schools as well. The idea is that if you have an entity that specializes in a certain service, that they'll be able to do it more efficiently than you can and therefore you will save money. That's absolutely the biggest pro. It's important to figure out whether or not that's true. The biggest con that I've seen is you lose control over that service to a large degree. Look, transportation is a big area where school districts outsource and there are big school districts in Southeastern Pennsylvania that have not outsourced transportation and they specifically have not outsourced it because they want to keep a fine-tune control on their transportation system.

Those who have outsourced it, I think they've seen cost savings, but there is a lack of control and they've seen that as well. I think that's the big trade-off, that you save money, but that there is, perhaps, a less quality of the service, although that's not always the case. I mean, I've seen certainly in more specialized, smaller areas of service, you could have an improvement of the quality of service.

In your opinion, what's going to make the outsourcing process most successful?

[Amuso] First of all, I think you should define success. I don't think you should necessarily define success as actually outsourcing the service. I think you should define success as saving money for the school district because I think, again, that's the big pro of outsourcing and if you can save the money without outsourcing, I think you've still succeeded. But then the other factor I would say is respect. Respect the process, follow the rules, give that 30-day notice, meet all the technical requirements. But the other part is respect the unions involved. I mean, this is a difficult subject for everybody, but you can really give them a chance to respond, give them a chance to review the proposals from the third party, really listen to what they have to say in response, and give them a chance to be heard. There are many times where, in the end, the result is not outsourcing, but there is additional savings and efficiencies that can be realized. I think that's really success in my book.


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Podcast transcripts are provided as a summary of the conversation and have been lightly edited for the written medium. The transcript is not a verbatim representation of the interview.
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