On March 14, 2002 the Calgary Health Region issued a Request for Proposals for an “HRMS Strategic Partner Solution” to provide human resources services in the Region. Members of CUPE Local 182 currently provide many of the services in the Human Resources Department.
CUPE would like to go on record that we are opposed to any “partnering” with the private sector to perform human resources work within the Region. Our opposition stems from the extensive body of research that casts considerable doubt on the effectiveness of “partnering” as outlined in the RFP. The most effective and most efficient way to provide these services is for the Calgary Health Region to keep this service in-house.
The RFP calls for a partnership to be developed on a “business transformation approach.” Research indicates that public private partnerships of this type have many pitfalls and that the CHR would best avoid entering into such an arrangement with the private sector. These pitfalls will be outlined in greater detail below.
Overall CUPE Local 182 has significant concerns on at least four different but equally important fronts.
- Quality of Service
“Partnering” and contracting out can lead to a deterioration in the quality of work performed in the human resources area. Just because a private for-profit corporation takes over responsibility for the work is no guarantee that performance will be enhanced or productivity improved. To the contrary, our experience and research tells us that the quality of work often diminishes.
Turning the work over to a for-profit corporation will jeopardize accountability to the CHR and ultimately to the taxpayers within the CHR and the province.
- Efficiency and Cost-savings
Extensive research in the area of public private partnerships indicates that these arrangements do not save money and often cost more money. Taxpayers end up paying the bills for a contractual arrangement that is designed to skim public money off into private pockets as profit. And workers in the system are often sacrificed to create profits.
- Job Security
The current RFP erodes job security for those who work in human resources. All PPP projects we have studied show that layoffs and job loss by attrition are inevitable. Paring down the size of the workforce is necessary for the for-profit corporation to create cost-savings that then can be accessed as profits. There are no guarantees for continued employment, training or any other type of accommodation beyond that which is provided in legislation.
- Privacy and confidentiality of information
The requirements of the RFP do not adequately ensure that the privacy and confidentiality of information is protected.
While the words “public private partnership” are not used in the RFP this is clearly a PPP and the CHR is looking for a “strategic partner solution”. PPPs are usually introduced with the idea that this will be a cost-savings measure. The private sector will supposedly take on risk, provide capital and run the operation more efficiently. Our experience is that this is rarely, if ever, the case.
The RFP indicates that the CHR is looking for a partner to provide capital financing for the project and to contract services. The contract is to be a long term one.
Specifically the CHR is asking bidders to submit proposals to
- Invest in, implement and manage a state of the art integrated human resources and payroll management system within 24 months of winning the contract. The CHR is planning to award the contract by June 14, 2002.
- Assume risks associated with the financing of the project
- Take over the operations of the Human Resources and payroll functions including all staff
- Make a significant investment in securing a human resources management system and fund all project costs. This includes cost of the new technology to transform the way services are carried out in search of greater levels of satisfaction, effectiveness and efficiency.
The real question is: What does this mean for the employees of the CHR and citizens who are served by the CHR? In the sections below we unpack some of the central concepts and ideas contained within the RFP as well as examine some of their implications for the provision of health services.
Gain Sharing and Business Transformation: Risking Taxpayer Dollars for Private Profits
An important feature of the RFP is that the compensation for the successful bidder will be determined, at least in part, on a performance basis and there will be “gain sharing.” Gain sharing is a calculation of documented operational cost savings and benefits and the private partner will be paid a proportion of that figure. It is up to the private sector bidders to propose the specifics of the gain sharing plan in their proposals.
The details of the calculations of the “gain sharing” are most important. However, the calculation is left for the for-profit partner to propose and the final calculation is ultimately a matter of negotiation between the for-profit partner and the CHR. Consequently, the taxpayers of Alberta will not really have any input into whether the calculation provides value for the money for Albertans.
Further, citizens will not have any meaningful oversight with regard to ensuring that there is administrative accountability for the payments to the for-profit providers. Administrative accountability was breached significantly in the case of the Ontario Business Transformation Project.
“Business transformation” is the term used in the RFP to refer to performance improvements on which compensation will be based. It is expected that performance improvements will result from the introduction of new technologies (probably both hardware and software), improvements in the way the work is performed and changes in organizational behaviour. Changes in organizational behaviour could mean anything from changes in employee relations to changes in management style to changes in how various parts of the organization interact with each other.
All of this comes to the fore when compensation for the private sector partner is being determined. If the private partner is to be paid on the basis of “benefits” and “cost-savings”, who is to say what a “benefit” is or what a “cost-saving” is? More importantly, who is to say that the “benefit’ or “cost-saving” results from the value added by the private partner? It could just as well come from changes made and paid for by the CHR itself. In that case, should the savings be allocated to the private partner as payment or profits? The position of CUPE Local 182 is that all benefits should remain with in the health care system and not be siphoned off as profits.
These questions should not be dismissed as theoretical in nature. They were real issues in other public private partnership situations. In the case of the Hamilton-Wentworth Sewage Treatment Plant, Philips Utilities took the Region of Hamilton Wentworth to court in order to secure payments that were the result of efficiencies that the Region itself had implemented.1 Philips argued successfully that their contract guaranteed them a share no matter how the efficiencies were made. In the case of the Ontario Business Transformation Project, Andersen Consulting were granted payments even though it was impossible to tell why the cost-savings resulted. Administrative practices were so shoddy that the accounting could not be deciphered.2
The Section on the Ontario Business Transformation Project below outlines the horrendous experience of the Ontario government with the “business transformation” approach. It stands as the single most important example of why this model should be scrapped.
No Job Security for Employees in the RFP
The RFP asks for bidders to treat the existing CHR employees openly and fairly and that they be given an opportunity to continue with the successful company. But that is as far as it goes.
The RFP does not provide any job security for existing employees outside of any provisions the existing collective agreement provides and whatever the Alberta labour Code provides in terms of successor rights. The CHR is not requiring the successful company to hire existing employees nor to keep them in their current areas of employment, although they do ask the bidders to submit their plans for employee transfer.
It is quite likely that the “business transformation” will mean that the work will change substantially through technological change. Some areas of work will disappear and some new areas of work will be created. Layoffs or loss of staff by attrition will be inevitable if the private partner is to realize enough savings to make a profit.
While there is a requirement in the RFP for bidders to provide information on new salaries, equivalent benefits, training, guaranteed employment periods, etc., there is no guarantee the successful bidder will provide any training or other accommodation to existing employees under a new system.
Technology and Protection of Privacy
The private partner will be expected to invest in new technology for the system. It is expected that the computing environment will be off-site i.e., all computer technology will be housed at the corporation’s facility and not at the CHR. This has implications for the confidentiality of information as per the Freedom of Information and Protection of Privacy Act and the Health Information Act. The private contractor and its employees cannot use any of the information for any purpose other than that for which they have contracted with the CHR. The RFP requires that all bidders demonstrate how they will ensure that information is not misused, sold or released contrary to legislation and that privacy legislation is not contravened.
In point of fact it will be very difficult if not impossible for the private sector to guarantee that the confidentiality of information will neither be compromised nor jeopardized. How will the CHR be able to monitor this requirement? How will the CHR hold the private partner accountable for the protection of information? Will there be appropriate checks and balances in the system? Will penalties be applied for any breaches?
While the RFP says that it is preferable for the data to remain in the province of Alberta, there is no requirement to do so. Data could be stored in other provinces or off-shore where security may be not as stringent.
It is our position that there is no substitute for direct control and accountability over the information held be the CHR-whether it is information on its employees or information on patients and health services.
Reality Check: There is No Transfer of Risk
The RFP is explicit that there must be a transfer of risk from the CHR to the private partner i.e., the private partner will assume risk for financing and for areas of work which it contracts.
All the studies of PPPs carried out by Prof. John Loxley demonstrate that this transfer of risk is more illusory than real.3 In the Hamilton-Wentworth Sewage Treatment public private partnership, after the deal was struck there was a significant spill of sewage that required millions of dollars to clean up. That risk was not absorbed by Philips – the private sector for-profit partner but rather by the Region of Hamilton-Wentworth4 and the taxpayers footed the bill.
In other health related partnerships, the risk for the investor is often tempered by the public sector. At the Vancouver General Hospital a new health records information system was guaranteed by the hospital itself even though the risk was supposed to be transferred to the private partner. Similarly, a partnership at the North York Hospital near Toronto for new parking facilities was guaranteed by the Hospital Trust even though the risk was to be shouldered by the private partner.
So, the experience is that the private sector is risk averse and tries to eliminate as much risk from their investment as possible. Any risk the private partner does accept on the financial investment side is more than covered in their arrangements on the compensation side. Profits are often guaranteed. If something goes wrong e.g., there is a massive problem with the new technology, it is likely that the contract will be re-negotiated or the public sector will be left to sort out the financial problems.
Shared Services: Should the CHR be in the Business of Marketing HR systems to Other Health Authorities?
The CHR is requesting that bidders submit proposals outlining how a shared services arrangement might exist if the new system were marketed and sold to other Regional Health Authorities. The CHR is gearing up to sell this new arrangement to other Health Authorities. This raises the question of whether the CHR is overstepping its mandate. Shouldn’t the CHR be concentrating on its core services which are to provide health services for citizens within the CHR and to conduct the administrative functions of the CHR to ensure that those services are provided?
What happens if the CHR takes on the role of business partner with a private sector for-profit corporation? Who would own the application software and the licences? Where would the proceeds from the sale of the system go? To the private sector for-profit corporation? To the CHR? To both? Who would decide where the profits should reside? Will the CHR end up subsidizing private profits with public money? In the end, this process could be one where public infrastructure is gradually privatized using existing public infrastructure and resources. And all the while health services are at risk to be relegated to a secondary place in the decision-making process.
It is our position that new developments in providing HR systems in the CHR should be shared with other Health Regions on a not-for-profit basis in order to keep overall health costs down.
Contracting Out Collective Bargaining and Negotiations: An Invitation for Labour Unrest
It is interesting to note that collective bargaining and negotiations are listed as one area that that they will consider contracting out. This means that a corporation could include it in their proposal and the CHR would consider it. One hesitates to think how the corporation would be compensated on the basis of gain sharing under this proposal – savings from negotiations could be paid to the corporation contracting this work. Concessions from employees could be transferred to the private partner to become profits.
Health human resources analysts are in agreement that recruitment and retention of health care personnel at all levels rests primarily on the ability of the employer to provide adequate wages, benefits, pensions and good working conditions. Why would the CHR want to risk increasing labour unrest by contracting out collective bargaining to corporations who will be driven by the profit motive to drive down wages and benefits? Who will benefit from such action? Dollars will go into profits rather than into recruiting and maintaining a workforce who can provide health services effectively and efficiently with the least amount of distraction.
The Ontario Business Transformation Project: What the CHR Should Know
The Ontario Business Transformation case is one with many parallels to the RFP issued by the CHR. It is a prime example of how a “business transformation” project can become a gigantic boondoogle and a windfall for the private sector.
In 1995-96 the Ontario Ministry of Community and Social Services began a “Business Transformation Project” to transform the existing Family Benefit and General Welfare Assistance programs into a new single-tier system. The Ministry entered into a “Common Purpose Procurement” agreement with Andersen Consulting (now Accenture)5 to accomplish this task. Under this agreement Andersen Consulting would pay some, or all, of the up front costs in exchange for a share of the cost savings realized.
The result was disastrous and cost more money than it saved. The Ontario government (and Ontario taxpayers) shouldered the cost while Andersen Consulting made off with substantial profits.6 The case attracted the attention of the Ontario Auditor General who uncovered many irregularities.7
The irregularities included:
- the Ministry had not clearly defined the scope or results from the project.
- the Ministry had not considered maximizing its own resources in carrying out the project
- because no desired business results were established, the Ministry could not determine if there was progress in meeting them
- the Ministry could not demonstrate that they had selected the most cost-effective proposal
- the Ministry did not demonstrate any cost/benefit implications or any overall value for money objectives
- it could not provide the basis on which to pay Andersen Consulting a minimum of $180 million out of future savings
- the Ministry agreed to reimburse Andersen Consulting for certain project costs over and above the $180 million fee.
- Andersen shares disproportionately in the cost savings because it’s billing rates were almost six times higher than the rates charged by comparable Ministry staff
- at the time of the audit (1997-98), Andersen’s Consulting rates exceeded the rates quoted in 1995 by 65% on average.
- the Ministry did not charge all of its costs to project expenditures for future recovery from savings
- the Ministry did not require receipts from Andersen Consulting for more than $41.4 million in out-of-pocket expenses.
- the Ministry paid Andersen Consulting $10.3 million to December 1997 and $15.5 million to March 31, 1998. These payments were clearly attributable to Andersen under the terms of the agreement and resulted in Andersen being paid $13.1 million more than its costs to March 31, 1998.
- the project was considerably behind schedule.
The Auditor General found that while the government had implemented many recommendations, it still did not identify alternative, more cost-effective ways of doing the work. Instead, it simply decided to pursue the arrangement with Andersen. Similarly, the Ministry was still not adding all of its costs to the cost pool even though associated benefits from those costs were added to the benefit side and would be redistributed to Andersen. Andersen has not been penalized even though the project has fallen significantly behind schedule.
As of March 31, 2000 the project cost $146.7 million ($117.4 million from Andersen Consulting and $29.3 million from the Ministry). Benefits from the project totaled $116.2 million so the cost exceeded the benefits by $30.5 million. Payments to Andersen totaled $95.6 million.
The entire project should be classified as massive failure of the Common Purpose Procurement approach to privatizing public services.
Lessons for the CHR
The Ontario Business Transformation Project contains many lessons for the CHR. The most important of these is that PPPs for these types of services simply are too risky. They cost more than they save and there is tremendous potential to lose control of the service and the taxpayers are left picking up the pieces, paying the bills and paying for additional unexpected costs.
The Ontario Business Transformation Project corroborates all the other studies we have done on PPPs. They do not save money, they do not improve service, and they endanger public accountability.
Decision making is something that must be done carefully and properly.
In the case of PPP’s and contracting out, there are more questions than answers. As the Board of the Calgary Health Region, the Administration and the Union’s representing the employees, we have a responsibility to the public and ourselves.
As the Board and Administration, you have collective opportunities and responsibilities to ensure that the decisions made are in the best interests of public health care in the Calgary Region.
We request you review our brief, acknowledge our recommendations and work with the Canadian Union of Public Employees to continue to provide quality health services.
In light of the evidence from the Ontario Business Transformation Project and the potential problems we have outlined in our brief, CUPE Local 182 make the following recommendations:
- The Calgary Health Region should begin the process of renewal of the HR/Finance functions with the assumption that HR/Finance functions should remain in-house and the Calgary Health Region should remain as the employer
- The CHR should put an immediate moratorium on the RFP process pending further investigation of the possibilities to keep the functions of the HR/Finance Department within the Health Region by maximizing its own resources.
- The CHR should meet immediately with its respective unions to work out a plan of action to ensure that HR/Finance functions can be performed efficiently and effectively within the Region.
The CHR should provide a copy of the Region’s Five Year Business Plan to CUPE Local 182 so that the Local may have adequate and appropriate information on which to make other positive recommendations.
1. Salim Loxley, An Analysis of a Public Private Partnership: The Hamilton-Wentworth - Philips Utilities Management Corporation PPP, CUPE, September 1999;
2. Office of the Provincial Auditor General of Ontario, 1998 Annual report.
3. CUPE commissioned Professor John Loxley, an Economist from the University of Manitoba, to coordinate a series of rigorous economic investigations into public private partnerships. The results are uniformly damning of the PPP approach. They are more costly in the long run, they jeopardize accountability and they diminish the quality of services provided. Prof. Loxley coordinated the following projects, among others, which examined the economic underpinnings of PPPs: Dan Davies, The Struggle over Diagnostic Lab Testing: The Canadian Experience, CUPE, April 2000; Shauna Mackinnon, Business Transformation Project, Government of Ontario: A PPP between the Ministry of Community and Social Services and Andersen Consulting, CUPE September 1999; Salim Loxley, Ibid.; Nicole Cyr and Tammy Schirle, An Analysis of the Public Private Partnership Involving the Urban Shared Services Corporation, CUPE, June 1999.
4.Salim Loxley, Ibid.
5.Andersen Consulting changed its name to Accenture on January 1, 2001. Until August 2000 it was associated with Andersen Worldwide and lined to Arthur Andersen through various agreements. Arthur Andersen has subsequently gained notoriety for improprieties in the Enron case.
6.See Shauna MacKinnon Ibid.
7.Office of the Provincial Auditor General of Ontario, Ibid.
8. Office of the Provincial Auditor General of Ontario, Special Report on Accountability and Value for Money (2000). See also David Whortley, The Andersen-Comsoc Affair - Partnerships and Public Interest, Canadian Public Administration, Vol. 44, No. 3, (Fall): pp. 320-345; and Ontario Safety Network with the Welfare Watch Project, Andersen and the Auditor 2000