Are government contractors immune from Snyder’s ‘shared sacrifice’?

Though Michigan’s Republican leadership has focused on reducing the costs associated with state employees — just yesterday passing a law that requires them to pay more for health insurance — the bulk of state spending goes to businesses and so far they are not being asked to share in the sacrifice.

A report put together by the unions that represent state workers says that while the state has sharply reduced its workforce and cut benefits, it has not cut back on the tens of millions it spends on third-party contractors that are often out of state companies.

Using data from the Office of State Employer, the unions determined that in the first half of this year, $5.4 billion or 26 percent of all spending was on private contracts while $2.1 billion or 10 percent was spent on state employees.

The governor has demanded $145 million in concessions from state employees, but union groups say they are unwilling to accept further cuts before the administration acts to reign in spending on contracts.

“If you took ten percent of the service contracts existing it would represent over 100 million dollar in savings,” said Ken Moore, president of the Michigan State Employees Association, “yet the administration chooses not to look into it.”

The governor is not considering action on service contracts, Moore said, and has even pulled back on oversight authority.

The Office of State Employer confirmed that the Snyder administration has rescinded a Granholm-era executive order that directed it to try to negotiate savings with contractors.

State employees say that there is no effective oversight mechanism for contracts and departments often end up paying for services that could be done more cheaply by state workers.

Contractors often fail to account for some expenses in their initial bids and services grow more expensive over time.

Lawmakers don’t understand the contracting process, labor groups say, and because many contracts extend for several years, it’s difficult for term-limited legislators to get a grip on problem contracts.

At a meeting with union groups in Traverse City last week, House Appropriations Committee member Rep. Greg McMaster (R-Kewadin) listened as local employees of the Depts. of Human Services and Corrections detailed wasteful state spending on foster care placement and prisoner rehabilitation services and promised to look into the matter.

“There should be nobody that should be left out when it comes to cuts,” McMaster said. “There is a lot of mismanagement that needs to be brought to light.”

McMaster said that his initial idea of how to address problem contracts was to add staff to the office of Auditor General but that this idea was shot down by colleagues who said the budget would not allow for new hiring.

The Office of Auditor General has authority to audit all spending on contracts but has has itself suffered cuts that limit its ability to monitor contractor performance.

A review of the effectiveness and efficiency of contracts would be extremely labor intensive said Scott Strong, deputy auditor general.

In the 2005-2006 fiscal year the Auditor General did a report on contracting for information technology services and found that the state had paid hundreds of millions of dollars in cost overruns, Strong said, but the department was never able to follow-up to see how the responsible parties responded to the audit.

“When you think about it in terms of our audit responsibilities,” Strong said, “the state spends 40 billion a year and we are responsible to do the annual financial audit for the state, then we have to do all of the audits mandated by the federal government and then with what’s left we do performance audits. As we lose people we do fewer and fewer performance audits.”

“A few years ago slightly more than 50 percent of our resources were used on performance audits,” he said. “Last year we were down to 35 percent.”