Potential Changes to New Jersey’s Public Services Privatization Contracts

S-1350/A-5430, which establishes procedures and standards regarding public services privatization contracts, has been released from committees. The Legislation would limit local government’s ability to privatize public services. The New Jersey State League of Municipalities, the New Jersey Association of Counties and  the New Jersey School Board Association all oppose  the proposed Legislation.

The Legislation applies to municipalities, boards of education and regional commissions that provide contracting services for districts. The bill applies to any contract of $500,000 or more by which a non-governmental person or entity provides services previously provided by government employees to meet certain requirements. Among the requirements: every contract that exceeds this threshold must be solicited by competitive bids; every bid and contract for privatization requires that the public not be subject to any fees or charges greater than those currently charged; the services provided are equal to or exceed the quantity and quality of currently provided services; and prior to the solicitation of bids the employees and their union(s) be permitted to review the public agency’s estimates and submit an alternative proposal to reduce costs.

A copy of the proposed privatization contract and written certification must be provided to the Office of the State Comptroller for review. The OSC can prohibit a public entity from entering into a privatization contract if they determine that the bid does not provide cost savings or that the public entity has failed to comply with the provisions of this bill.

The bill would apply to many services outsourced by school districts: custodial services; transportation; student progress assessments; child study teams; and educational support professionals, among others. Achieving cost savings, which is a precondition of determining to award a contract to an individual or entity to provide services currently being provided by district employees, would be very difficult to achieve since the fee paid by the vendor must match the district employee’s salaries. In addition, any financial costs, such as any impact on unemployment or retirement benefits, and any loss of tax revenue if the entity is out-of-state, must all be calculated in the cost analysis.

NO GRANDFATHER CLAUSE

It is important to note that the law, if adopted, would be effective 90 days after it is enacted. It does not apply to any privatization contract entered into before the effective date, or to any renewal of such contract.

CONCLUSION

This bill adds many layers of review and oversight, rendering the process burdensome and lengthy. The financial impact on both districts and potential bidders is likely to result in an inability to utilize private vendors to provide many essential services at a time when districts are often struggling to fill positions for such services as busing and para-professional services.

We encourage school districts to follow the bill to see whether it is amended and/or adopted. We will provide updated analysis if the legislation is adopted.

This Client Alert was prepared by Adrienne L. Isacoff. She serves as Of Counsel to the firm’s Construction Law and Education Law practice groups and provides counsel to municipalities and school districts on all aspects of procurement.