Public or Private?

Agencies have to look at the pros and cons when deciding on whether to use contracted services, in-house staff or a combination of the two. Three agencies provide their experiences from three different viewpoints; SunLine Transit uses all in-house staff, Foothill Transit runs with all contracted service and Phoenix Public Transport utilizes a combination of the two.

Keeping it Within
The decision to use contracted employees vs. in-house has pros as well as cons. The general contention of transit agencies is that using contracted employees is normally more cost effective. Let’s touch on the overall advantage of hiring contracted employees from a financial perspective. Contractors make money by keeping costs low. They often hire at an hourly rate, less than those paid by the transit agency; for example — the transit agency pays drivers $20 per hour and the contractor pays $12 per hour.

There are many expenses for in-house employees that an employer must pay, as opposed to contracted employees, such as a share of the Social Security and Medical taxes, state unemployment compensation insurance and workers’ compensation insurance. The costs of providing benefits, which have increased dramatically, can increase payroll costs as much as 30 percent.

On the other hand, overseeing contracted operations is fairly expensive. The contracted employee drives vehicles usually owned by the transit agency. The agency’s maintenance department must inspect and insure the vehicles. It is in the agency’s best interest to inspect cleanliness and operation of the vehicles as the agency logo appears on the outside of each contract-operated bus or van.

Under a contracted operation, a transit agency will assign one or two people to manage the operation. This is believed, in the long run, to save money.

If the agency has good managers handling the operation, they can oversee a “good” contract operator without many issues. But if there are issues with the contracted operator, the agency must go through the process of documenting discrepancies and assessing penalties. Refuting the penalties can be time-consuming and even lead to litigation, potentially a very costly process for the transit agency and the contractor. Non-responsive contractors can be exceptionally hard to manage and can waste a lot of the agency’s management time, not to mention the possibility of ruining the agency’s reputation. Remember, the contractor does business under the good name of the transit agency.

In-house employees have a wide array of rights under state and federal law. There are a variety of legal claims that can potentially be brought up against an agency. Among the rights that are available to employees, but not contracted operators, are as follows: the right to receive at least the minimum wage, and for employees who qualify, overtime compensation at the rate of one-and-a-half times their regular hourly wage; protection from discrimination on the basis of race, national origin, color, religion and gender; the right to form a union; the right to take time off for a sick family member or bond with a new child.

Another downside to using contracted employees is that transit agencies lose control of the quality of service. Contractors are responsible for hiring and training of vehicle operators as well as managers of the operation. The transit agency must approve hiring and personnel policies and then monitor the drivers’ training program. In addition, the standards specified in the contract may not always be followed and the transit agency ends up “managing” the contractor. When the operation is conducted in-house, there is no middle management, or wall, between the management of the agency and the actual work performed by front-line employees. Control of the operation is direct and immediate.