Paul Egan

Detroit Free Press

LANSING -- The Michigan Department of Corrections, which was at the center of a recent controversy over problems with its former prison food contractor, is setting up a 30-person unit to monitor the department’s private contracts for the supply of food, medical treatment and other services.

Though privatization is on the rise in state government, officials say the corrections department is the first state department to set up such a unit.

Critics say the full cost of contract monitoring, highlighted by MDOC’s new 30-person unit, does not always get factored in when the state opts to replace state employees with private contractors in a bid to save money.

Department Director Heidi Washington told a House appropriations subcommittee on Oct. 29 that the department has contracted out a number of services in addition to the highly publicized food services contract, which was initially awarded to Philadelphia-based Aramark Correctional Services but after much controversyswitched to Trinity Services Group of Florida. Those include certain health services, mental health services and pharmaceuticals, she said.

"We need to better coordinate our monitoring efforts" across all contracts, with uniform standards and training for staff who do the monitoring, Washington said. "We have some significant relationships with vendors."

All told, the department spent about $250 million last year on about 185 service contracts, including about 70 substance abuse contracts, more than a dozen sex offender related contracts and about a dozen prisoner re-entry contracts with community service agencies, spokesman Chris Gautz said.

In addition to monitoring the contracts, the new unit will conduct required audits under the Prison Rape Elimination Act, Gautz said.

Washington said the department is working with the Civil Service Department on establishing the new unit and identifying positions for it, which she said would be filled by realigning existing staff rather than hiring new employees.

A December report from the state auditor general said the Corrections Department spent about $2.1 million to monitor the Aramark contract between December 2013 and August 2015.

Roland Zullo, an associate research scientist who studies privatization at U-M's Institute for Research on Labor, Employment and the Economy, said the cost of monitoring a privatized state service can vary significantly, depending on the nature of the service.

When a municipality contracts out for garbage collection, the change is largely self-monitoring, because if the garbage doesn't get collected, officials will quickly hear about it from homeowners, Zullo said.

But with other types of services, such as those involving child protection or inmates, where those being served lack a strong voice, "that natural monitoring function by the public doesn't exist," there is greater potential for abuse and undetected contract violations, Zullo said.

When making the case to privatize a state service, officials typically estimate saving a certain percentage of payroll on administrative costs, such as processing of payroll, and also apply a fixed percentage of payroll for the cost of supervision, Zullo said. But there's little evidence either estimate is accurate and the cost of monitoring contracts is typically underestimated, he said.

Zullo said he doesn't think more monitoring or a different contractor will fix the problems associated with the prison food contract. The problems, he said, relate to trying to pay close to fast-food wages for important and stressful jobs, which have a security aspect, supervising inmate cooks.

Michael LaFaive, fiscal policy director for the Mackinac Center for Public Policy, which advocates for privatization of government services, said effective monitoring is essential to successful contracting, and he agrees the cost of that monitoring should be included when calculating the net cost or benefit of a privatization initiative.

"A contract can still save money with contract monitoring being part of it," LaFaive said. "The cost would be a lot higher if you don't have that monitoring."

The state said disagreements over billing led to a mutual agreement with Aramark to end the Philadelphia-based company’s three-year, $145-million contract in September, when it still had more than a year to go. The state didn’t cite a history of problems with Aramark, which included food shortages, maggots in the kitchen,smuggling of drugs and other contraband by Aramark employees, and Aramark workers engaging in sex acts with inmates.

During the height of the problems, the state moved some oversight functions for the Aramark contract to the Department of Technology, Management and Budget.

Trinity's three-year contract is costlier, at $158.8 million.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.