A Sticky Business

No state is immune from hosting private contractors who come to do a job, are paid well--and never leave.
October 2005
Ellen Perlman
By Ellen Perlman  |  Former columnist
Ellen Perlman was a GOVERNING staff writer and technology columnist.

They're lurking in back offices--sapping state funds, causing resentment among state employees, overstaying their welcome. They are legacy information technology contractors who come for a visit and, like a bad houseguest, never leave.

In Wisconsin, some of these contract workers are being paid as much as $215 an hour, which is way more than any state employee doing similar work. Wisconsin state Senator Mike Ellis made a public fuss about it, calling the overpaid contractors a taxpayer rip-off. The Department of Administration is now clamping down on what it says are the excesses and holdovers of the financially exuberant 1990s. That era of surpluses led to a 123 percent increase in state contracting between fiscal 1994 and 2003. "Until 2003, no one was tending the store," says Pat Farley, administrator of enterprise operations for the DOA.

No state is immune from stick-around syndrome. In Texas last year, the Department of Health and Human Services fired two contractors who were managing a software contract. Each one was being paid $30,000 a month. One state employee now does the job for $7,500 a month.

Contracting out and paying top dollar for technology experts for special projects is not inherently evil. It is, in fact, necessary. Complex IT projects often require experts with the proper technical skills. That expertise is usually supplied by vendors.

But management of that expertise is less than perfect. Oversight is often lacking, and the consultants linger beyond what logic and cost- efficiency dictate. Perhaps a contract has no end date, or there is poor accountability in an agency.

There are many legitimate reasons why contractors are allowed to linger. For the Wisconsin Department of Transportation, the decision on whether to hire more contractors depends on how many state employees the legislature allows it to hire. The department knows it can save money by using state workers and has requested that it be allowed to convert some contractors to state employees with state employee salaries. But the department hasn't been able to win approval to convert as many workers as it needs.

In California, agencies submit requests for new state positions to the Department of Finance. When adding new employees is denied, departments have been allowed to contract out those same jobs because they are charged against the budget as a service rather than as personnel. Those contractors can end up staying years, even though, as Margarita Maldonado, who chairs a bargaining unit of a local union, points out, "Contractors are supposed to be a short-term solution."

Michigan has found it has contractors on site who have been there longer than some state employees and who cost twice as much. The state is identifying and replacing them with state workers. But it's often not easy or quick to transfer their expertise or knowledge. "Getting a state person up to speed takes time," says Teri Takai, chief information officer. As Michigan bids new contracts, technology officials are trying to make sure state workers get the requisite expertise from contractors. Costs escalate if contractors have to stay around through the training process.

Meanwhile, in addition to the $215-an-hour contractors, two Wisconsin DOT contractors have been on the state job 15 and 11 years, respectively. Both are paid $21 more per hour than a state employee would be paid for those jobs.

Wisconsin is trying to chip away at the problem. Governor Jim Doyle notes that it started developing more than 16 years ago and will take a while to fix. During his campaign for governor, Doyle, who was then the attorney general, made a point of calling into question how much the state was paying for IT contracting. In the 1990s, there was an overheated market for IT workers, and contractors could demand high rates. But as time went by, the contracts were not scrutinized to see if they should be terminated and re-bid at a lower cost. "No one kept an eye on the marketplace," DOA's Farley says.

In the first year of Doyle's administration, IT contracting fell by more than $20 million. The state announced last November it would achieve another $93 million in savings over five years under a new contract for the Medicaid Management Information System. The existing Medicaid contract had not been re-bid in more than a decade.

And a new mandatory enterprise-wide contract for IT services will create a logical and orderly way of paying IT contractors. A rate card sets a consistent hourly rate for all job titles, says Scott Larrivee, a DOA spokesman. "Before, we had people in various agencies doing the same thing and getting paid differently."

Ellen Perlman
Ellen Perlman | Former columnist | mailbox@governing.com