BC's Big Outsourcing Bet

When the NDP government was in power in the 1990s, BC Federation of Labour president Jim Sinclair was on BC Hydro's board of directors. He recalls a Hydro executive arriving at a meeting with a plan to cut the number of call centres in half. "Then she said, with a big grin on her face, 'I guess it goes without saying that if you let me I could get this work done for half the price we pay here by getting people in Georgia to do it.' We all laughed."

Sinclair says she got her way on consolidation, but she at least understood implicitly that BC Hydro is a B.C. company, so its work stays here.

Sinclair gets nostalgic when he talks about the importance of commitment to place. "In the old days, there was a sense of community, the school was important, the bank was important, the theatre was important. You wouldn't consider sending the jobs of your neighbour somewhere else to lower the prices you pay. You wouldn't consider that."

So he's frustrated by BC Hydro's decision under the BC Liberals to eliminate the "15 percent rule", which allowed Hydro to pay that much more than the lowest bid on a tendered contract if it kept the work in B.C.

Sinclair sees the move as indicating the BC Liberals' disregard for B.C.-based employment. Pick an issue -the Terasen gas utility's sale to a U.S. company, BC Ferry construction contracts with German shipyards, public service outsourcing deals with multinationals Accenture, IBM, and Maximus - Sinclair isn't happy with provincial government policy. He believes the government is ceding control over our economy and our good jobs to international corporations.

"If you ask the public whether jobs should stay in British Columbia," Sinclair says, "and whether they should be good-paying jobs, and whether there should be rules and regulations that protect work in British Columbia, the vast majority would say yes."

The depth of the gulf between Sinclair and the government, however, becomes completely apparent only when he says that when companies decide where to operate they look first at the nature of your workforce. "It doesn't matter what your tax structure is."

Global rules, local needs

Finance Minister Carole Taylor, in a brief conversation with The Tyee about outsourcing in September, the day after she delivered a $143 million annual tax break to corporations, defended the Liberals' approach. "You can't have a provincial government that decides to play by different rules than the rest of the world and expect businesses to want to come here," she said, when asked why the government favours tax breaks over such policies as BC Hydro's 15-percent rule. "These days, businesses can move so easily and so quickly."

Like Sinclair, Taylor also talks about her commitment to the place where we live. She argues B.C. lost a lot of corporate head offices in the 1990s because provincial taxes and regulations drove them away. "When they make the decision to go, they're gone," Taylor says. "You almost have to start over again, and look for new companies, and nurture them." She pointed to the Liberals' big biotechnology tax breaks, which have retained and attracted several businesses, as part of that effort.

On the matter of outsourcing government work such as Medical Services Plan administration and computer maintenance services, Taylor acknowledges she's concerned that both government transparency and the culture of public service are issues when large projects and service functions are contracted out. But Taylor, who oversees the Sea-to-Sky Highway and Abbotsford hospital outsourcing managed by Partnerships BC, won't second-guess the BC Liberal government's decision to directly and indirectly contract out large components of public business to private corporations.

The moves save money and create a new kind of B.C. business infrastructure that will attract work from other jurisdictions, Taylor believes. "B.C. has been a net beneficiary of outsourcing," she argues.

B.C. seeks outsourcing intake

Kirsten Tisdale, who as head of the Alternative Service Delivery Secretariat helps negotiate the government's service contracts with companies such as Maximus and IBM subsidiary ISM Canada, says the government believes these companies will create "centres of excellence" that will attract work to B.C. from other jurisdictions. "We become a foundation client. Once that work is going well, they can add other business to our centres. Other governments, other Crown corporations in the broader public sector would look at working with them."

Tisdale says the contracts she negotiates specify that jobs remain in B.C. "We haven't allowed work to go outside the province. We need to know exactly who the subcontractors are."

Asked about the payroll of former government-employed computer support staff now working for ISM Canada, which is now done in Costa Rica, she says "I don't know anything about that."

She did say big companies doing provincial government work need to be able to take advantage of their global skill pools, and that some out-of-province work in areas such as software development is inevitable. As such, contracts need to be "thoughtfully constructed", but she says the companies are adhering to the spirit of the contracts. "'We're going to do the work in B.C. and it's going to stay that way unless there's an incredibly strong reason.' That's what we're seeing. We want to make these shining examples that the rest of the country would be interested in."

Offshoring often hidden

Ron and Andy Hira's book Outsourcing America, however, paints a more complicated picture of both corporate and government outsourcing south of the border. Many government contracts with private businesses have gone astray, and that's one reason why 33 states now have legislation that, in some way, restricts outsourcing.

Governments, say the Hiras, often offshore work unwittingly. "The state of Washington determined that about 150 contracts contained at least $50 million worth of offshore outsourcing," states the book. U.S. health care is increasingly being outsourced, with Indian radiologists reviewing X-rays and MRIs of U.S. patients. The University of California at San Francisco Medical Centre found out its medical transcription work was being sent offshore when an unpaid Indian subcontractor threatened to post patients' medical records on the internet.

While Sinclair acknowledges that some work might come to our "centres of excellence", he says policing the behavior of the companies doing government work is very difficult. "These people will make capital spending decisions that are not based on the best interest of British Columbia. How do you police that? It's complicated, let me tell you."

Then there's the matter of what happens when contracts with outsourcing companies expire. Sinclair sees a slippery slope, and as an example he points to the pending sale of Terasen, formerly BC Gas, to the U.S.-based pipeline giant Kinder Morgan. "The Socreds could tell 20 years ago what was going to happen, so they established two rules [for BC Gas]: you've got to have your headquarters here and you can't have more than 20 percent foreign ownership." The BC Liberals eliminated those restrictions. "Is Kinder Morgan going to keep Terasen's headquarters here? Not a chance."

He sees the same fault that he finds in the sale of BC Rail to CN Rail. The government, Sinclair declares, "gutted the intellectual capacity of the B.C. economy to run a railway in our own best interest".

Transparency is elusive

The flip side of this, for the Liberals, is that there are occasions when the intellectual capacity of government enterprise has been found wanting. There is no better example than poor computer systems management, which has plagued governments in B.C. and around the world. "We got out of that business," says Tisdale. "We're lousy at it, because it isn't our core business. There were a lot of spectacular failures. If you want to do that in India or wherever else there's a big pool of talent, I don't know that that's a terrible thing."

Tisdale does acknowledge that transparency is an issue in government outsourcing contracts, but she argues the defining the issue involves creating trust in the government's procurement process, which obliges corporations to reveal their cost structure and corporate strategy. "If we turn around and say now that you've opened your kimono and shared with us all your secrets, we're going to turn around and open that up to all your competitors, these firms are not going to come to the table and negotiate with us."

However, for critics of outsourcing, confidentiality has become a pretext for needless secrecy. It kept cut-and-cover construction plans for the Cambie rapid transit line from being publicly discussed. It prevents the public from knowing what Maximus's Medical Services Plan and Pharmacare performance targets are, or the amount of the fines it is paying for failing to reach those targets.

Is the potential for offshoring just another secret to be kept?

While summaries of certain contracts are available to the public, and the entire contracts are available to the provincial Auditor General, The Tyee was faced with a prohibitive $1,200 bill to receive an edited version of the MSP/Pharmacare contract.

BC Government Employees Union communications officer Chris Bradshaw has seen portions of it as a result of court action, and worries that its provisions to protect B.C. jobs can be easily voided by government inaction. "This is a public program that is being paid for with public funds," Bradshaw says, "and there's no public accountability."

BC Hydro's contract with Accenture Business Services has a long list of obtuse exceptions to the rules governing B.C. employment - even lawyers in a courtroom might not satisfactorily decipher them. Tisdale, who wasn't responsible for that contract, laughed when she heard a few. They effectively made her point about the importance of trust and goodwill.

Relationships require trust

Tisdale says one other thing of importance on the subject: "Deals don't fall apart because of a little clause in a contract; deals fall apart because people can't get along. They don't understand what the other needs out of the deal. You need to make sure the staff are treated well and have incentive to continue to perform and are happy doing that."

Many of Accenture's former Hydro employees would find that ironic. Andy Ross, president of the Canadian Office and Professional Employees local 378, says their contract with Accenture expired in March, and negotiations on a new deal are at a stalemate. Ross claims Accenture is seeking 25-percent concessions on wages and benefits.

Accenture's Vancouver labour relations spokesperson Brent Hale was not available to comment on Ross's assessment, but one senior Hydro insider told The Tyee Accenture is under real pressure to deliver its on service commitments within its existing budget.

Then, of course, there are the customers. Complaints to the BC Utilities Commission about BC Hydro's outsourced services, particularly from rural areas, are rising.

For Penny Gurstein, the UBC associate professor whose Emergence Canada research project has uncovered both positive and negative examples of global outsourcing, one of the defining considerations regarding government outsourcing is culture. "I don't think Maximus understands the culture of B.C. I don't think Americans understand the subtleties of Canadian culture. More importantly, I don't thing they understand the subtleties of government."

We're well down our new road, however. The B.C. government and U.S. corporate outsourcing giants are married now, for a fixed term and separation will not be easy. This complicated new relationship between government, corporations, and unions is going to require some real trust if it's going to work.

In B.C., trust has always been elusive. Global outsourcing is only going to grease the pole we're trying to climb.

Read the rest of this series:

• Outsourcing BC
• U.S. Outsourcing Millions of Jobs
• Outsourcing's Great Unknowns

Charles Campbell is a contributing editor to The Tyee.