– The outsourcing of a Pittsburgh-area maintenance garage to private contractor First Vehicle Services of Cincinnati since Feb. 21, 2005, has been a key piece of the city's drive toward fiscal recovery, reported the Pittsburgh Post-Gazette
A transition period ended last week, at which time First Vehicle appeared to be improving garage operations and saving money, though not as much as the city once hoped, or as First Vehicle once promised, according to the Post-Gazette.
"It's the biggest outsourcing project for the entire city," said city General Services Director Dale Perrett.
If garage privatization runs smoothly, it could add momentum to calls by Republican state legislators to outsource city sanitation, tow pound, and emergency medical services.
The fate of the effort hinges in part on how well city departments can avoid bang-ups, since the $4.2 million-plus contract penalizes the city for accidents. Just as important may be navigating relationships between private contractors, city officials, and union bosses.
In 2003, as the city underwent financial distress under state Act 47, Mayor Tom Murphy's administration explored its options. "Well before Act 47 and the whole rigmarole there were a number of places, I'm going to guess five or six areas, that we looked at closely for privatization," Murphy told the Post-Gazette.
In October 2003, the city asked for proposals to operate the garage. The city's 1,000 vehicles include everything from long-idled 1973 Mack fire engines to 2004 Chevy police cars that run nonstop.
The city received one bid from First Vehicle, which operates 135 garages for companies and governments throughout the United States. First Vehicle wrote that it was "confident" the city would "experience $3 million in annual savings" by outsourcing, reported the Post-Gazette.
That estimate shrunk to $1.8 million, and later $1.4 million, after First Vehicle examined the city's vehicles and agreed to take on the existing union contract.
First Vehicle and Perrett then negotiated a three-year contract in which the city pays First Vehicle $4.239 million annually for basic maintenance, plus more for extra work and performance bonuses.
Mechanically and fiscally, there's no room for error, said First Vehicle General Manager Jake Harvey. In addition to the $4.2 million base cost, the city budgeted $738,000 for extras and bonuses. That may not be enough.
In April and May, the bill for extras totaled $176,000, suggesting that it could top $1 million this year. Future bills could be higher. The American LaFrance ladder truck alone could cost $70,000 to fix, or $175,000 to fully refurbish, said Harvey – unless the city scraps it.
The extras likely won't cause a budget crunch this year, said Perrett, because the city has a $364,000 credit for parts it sold to First Vehicle. The city may have to budget more for extra charges next year, he added.
Its 2004 budget for fleet maintenance operations, not including gasoline, was $5.447 million. Add in what Perrett estimates at $750,000 in employee benefits and $150,000 in utilities costs, and the total increases to $6.347 million, reported the Post-Gazette.
Most of those costs are now First Vehicle's responsibility as part of its $4.2 million base payment. If April and May prove to be the norm, extras will cost the city $1.054 million this year. The city is also spending $113,000 for two employees who manage the contract, bringing the total to around $5.406 million. That would mean savings of $941,000.
The trick to increasing savings will be to use First Vehicle's data system to "put responsibility back to the user departments" by penalizing the budgets of the accident-prone, Perrett told the Post-Gazette.
Other than shifting from a pension plan to a 401(k), mechanics haven't suffered economically, said said Fred Bell, a garage machinist and the union president. Still, around 15 of the 36 mechanics that staffed the garage last year have quit, retired or gone on workers' compensation.
Harvey said he has made seven replacement hires, while subcontracting out some of the work formerly done in house. Now that the transition period is over, the streamlined staff must ensure that 95 percent of most vehicles are road ready.