Before Texas A&M University outsourced the management of buildings on its flagship campus in 2012, campus officials struggled with seven different work-order systems and a backlog of about 1,000 requests for maintenance or new equipment.
Now, after turning maintenance and landscaping tasks systemwide over to a private company, officials say they are on track to save $363 million over the course of a 10-year deal.
Numbers like that could make building management the next campus service to be widely privatized. Institutions have long hired private companies to manage a variety of campus operations — bookstores, food services, endowments, and parking lots — especially since the recession, as pressure to keep institutions affordable has intensified.
Just last week, the administration of Gov. Bill Haslam, Republican of Tennessee, placed a request for companies with experience in managing state buildings to provide information about their services. The governor has said that he is just exploring the state’s financial options, but the move has prompted speculation that Tennessee could eventually outsource management of all the state’s public buildings — including those on the grounds of the state’s two university systems. The state’s areas of interest, outlined in the request-for-information form, include the security, cleaning, repairs, and accounting for buildings.
What should Tennessee’s institutions expect? Experts say outsourcing services can help officials focus on the educational aspects of an institution instead of running a business. But deciding to outsource also brings its own challenges — chief among them, getting faculty on board — and may not always bring the cost savings officials predict.
Potential for Savings
The logic behind outsourcing almost always starts with savings. As students increasingly demand apartment-style residence halls and top-notch facilities across campus, reducing maintenance and management costs is seen as an alternative to increasing tuition, said Richard K. Vedder, director of the Center for College Affordability and Productivity.
That was the thinking when Texas A&M first outsourced building management at its flagship campus in August 2012, and on its 11 regional campuses the following summer, said Phillip Ray, vice chancellor for business affairs at the Texas A&M University system. Officials “continued to come up short” in their efforts to reach a sustainable budget and business model, he said. “We realized that we needed some expertise.”
It’s hard to project exactly how much an institution might save through outsourcing, said Bob Shea, senior fellow for finance and campus management at the National Association of College and University Business Officers. But the potential for savings has made it a “significant” practice, he said, and some institutions’ outsourcing stories have given colleges hope.
Officials in Tennessee don’t have to look far to find examples of how peer institutions have outsourced work on campus buildings — and sometimes gotten new ones in return. In 2014 the University of Georgia system chose Corvias Campus Living, a Rhode Island company that also manages military housing complexes, to build new dorms and maintain existing ones across nine campuses in a 65-year, $517-million deal. Through a reinvestment account projected to be worth $2 billion, all facilities will be in “like-new condition” by the end of the deal, according to a release from the company.
Three years earlier, the University of Kentucky picked Education Realty Trust Inc. — which also owns residence halls at Arizona State University, the University of Alabama, and Syracuse University — to manage its residence halls and build six others. As part of the deal, reportedly worth at least $500 million, the company covered the costs of construction, leaving the university with no debt. (While universities often save money through privately operated residence halls, those dorms are often more expensive to students.)
Mr. Shea said another frequently outsourced department — food services — also provides lessons. Sodexo, which runs food services at many institutions, has the benefit of scale to help drive down costs, he said. Buying “millions of dollars of chicken cutlet patties,” he said, “has a savings effect.”
The Cost of Efficiency
But campus officials must consider more than just the bottom line. One reason: Overall savings could come at a high cost to an institution’s employees. “Oftentimes reducing costs means reducing head count,” Mr. Shea said — especially at institutions that have identified faculty and staff salaries as among their largest costs.
And Mr. Shea said he has heard stories of employees who faced salary cuts or loss of benefits when they made the shift from public institutions to privately owned companies.
In Tennessee that possibility has left organized labor concerned. In a statement last week, United Campus Workers, Tennessee’s higher-education union, said that the “dizzying scope” of the governor’s proposal “threatens to affect public services and tens of thousands of jobs across every county in Tennessee.”
“Outsourcing has already proven to result in the decimation of benefits and pay for workers, and a sharp decline in the quality of services provided,” the statement read.
Another concern: Outsourcing building management can affect students and faculty in ways both small and large, said Angela Boatman, an associate professor of public policy and higher education at Vanderbilt University. Who can students contact if there is a problem with a building? Will faculty be forced to observe changes in the hours during which a building can be accessed?
“The idea people have about outsourcing is they’d somehow lose control over their own institution,” Ms. Boatman said. “It might be clear in one situation who you’d go to talk to to have your needs met. Outsourcing could bring up fears that it might not be a clear line.”
Campus officials who intend to privatize key services should follow a shared-governance model and listen to faculty voices in the decision-making process, she said.
Listening to those voices won’t always be easy for administrators. When Texas A&M sifted through about 30 proposals from potential service providers, the chancellor appointed 30 faculty members, maintenance workers, and students to a committee, Mr. Ray said.
“That first meeting was a little intense. They were concerned that decisions had already been made,” he said. “When you hear ‘outsourcing,’ that has a negative connotation.”
But challenging questions about campus culture should be answered, said Noel Radomski, director of the Wisconsin Center for the Advancement of Postsecondary Education. Before choosing an out-of-state provider, campus officials should make sure the company can handle their institutions’ “unique elements,” he said.
Snow, heat, or humidity would affect “a campus in Wisconsin significantly differently than New Orleans or Houston,” Mr. Radomski said. “So to what degree, when you go after national companies, will they be able to modify their practices of their employees to meet the unique features of their campuses?”
Negotiating for Benefits
Mr. Radomski also stressed the importance of long-term thinking. All campus buildings need to be either torn down or upgraded over time, so a private provider must be able to handle future repairs, he said. “What type of relationship do they have with architects and engineers who are part of the campus and system?”
Institutions that are smart about outsourcing will “interject an element of competition” to make sure they get satisfactory answers to questions like that, Mr. Vedder said. Universities should consider switching providers every several years, he said, using new bidding processes as leverage.
Outsourcing “doesn’t work in all occasions,” Mr. Vedder said. “You can have a terribly inefficient monopolistic outsourced private provider with no competition and a contract that’s fixed.”
Tennessee’s public universities may get a chance to find out soon if outsourcing building management works for them. John G. Morgan, chancellor of the Tennessee Board of Regents, and Joe DiPietro, president of the University of Tennessee system said in statements that the state’s two systems were “invited to participate” in the outsourcing but that the final decisions would be up to each campus.
“We also have the option not to adopt particular measures identified if we determine they are not workable or don’t achieve long-term savings,” Mr. DiPietro said.
At Texas A&M, after meeting several times, the committee reached a unanimous decision, Mr. Ray said. The university transferred its building-management tasks to Compass Group USA, which is based in North Carolina and oversees several subsidiaries focused on food service and facilities maintenance, shifting 829 employees from the flagship campus over to the company as part of the deal. Compass Group has since hired more than 100 additional employees to help at the university, Mr. Ray said. Campus officials negotiated full benefits packages and a 4-percent increase in pay for the employees.
The outsource provider also gave the College Station campus about $45 million upfront in unrestricted funds to spend as officials saw fit, and about $33 million in capital investments for dining and facilities renovations or upgrades. Mr. Ray said now he frequently fields phone calls from and hosts campus visits for institutions considering an outsource. “It was a smooth, smooth transition,” he said. “This has been a tremendous positive with us.”
Correction (8/31/2015, 6:03 p.m.): This article originally stated that Tennessee was accepting proposals from outsource providers to manage all the state’s public buildings. Instead, the state has placed a request for information from outsource providers, and officials say they have not yet decided whether to outsource all building management. The article has been updated to reflect this correction.