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Privatizing Pennsylvania,and Then Un-Privatizing
Penn outsourced its facilities operations, but a few years later, it took them back. What lessons did it learn?
By Jerel Wohl
Nearly ten years ago, the University of Pennsylvania announced that it would outsource its facilities and real-estate operations to Trammell Crow Higher Education Services, Inc. The agreement included management of school facilities—155 buildings over 269 acres on the West Philadelphia campus, excluding the four hospitals and other units of the health system, an off-campus arboretum, and the veterinary school’s large animal hospital, which is located outside of Philadelphia. It also included construction management and oversight of the university’s real-estate portfolio. Although Penn was experiencing major problems in the area of facilities management, the October 1997 announcement jolted Penn faculty, staff, and students, while others outside the university watched to see if the initiative would succeed or fail. The ten-year contract was to have ended in 2007, and this year would have been the time for Penn to determine whether to continue the outsourcing arrangement, which was supposed to increase resources to Penn in the amount of $5.25 million annually. In addition, the agreement included a one-time $26-million payment and was anticipated to provide savings of $15 million annually from the university’s then-$110-million annual facilities budget. The deal also allowed the university to make personnel changes desired by senior management. The deal affected about 160 Penn employees, of whom 80 percent were to be offered employment by Trammell Crow once the transition was completed.
The contract, however, was reduced in scope in March 2000, when operations and maintenance components reverted back to the University of Pennsylvania while Trammell Crow continued to manage the capital project and real-estate components. Then, in 2002, the agreement with Trammell Crow was completely terminated and the university took back the responsibility for management of its capital projects, as well as the property management of real-estate holdings. Trammell Crow no longer had a presence on the Penn campus. Trammell Crow to that point had managed $800-million worth of Penn’s capital projects, and helped buy, sell, lease, or manage more than twelve million square feet of property, in what was, according to the Philadelphia Business Journal, the largest real-estate contract in the city of Philadelphia.
Did this trying time in Penn’s history benefit or hurt the university? Ten years later, has the impact of outsourcing the facilities operation served Penn’s academic and research mission in a cost effective and efficient manner? Has the university community recovered from the tense times that resulted from this arrangement and its changes over time?
When Trammell Crow first assumed the Penn contract, the agreement included performance measures for cost savings and service improvements. However, it quickly became evident that the company could not meet those goals, as Penn had no reliable cost or performance benchmarks and lacked a financial system that could capture the information needed to measure performance. Because reliable measures of specific building facility costs were hard to come by, Penn had always operated under a system wherein the largest schools with the loudest administrators got the attention of those managing the facilities. Without reliable comparison data, it would be difficult to prove that the outsourcing was successful.
Another problem was that many Penn employees were unwilling to work with Trammell Crow personnel. Some of the unwilling employees were unionized housekeeping and trade staff, such as carpenters, electricians, and plumbers, whose positions had not been outsourced. Others were building administrators, who were not part of the Penn facilities operation but were responsible for working with facilities personnel to identify and correct specific building needs. These building administrators feared that their positions would eventually be eliminated as part of the effort to reduce costs. While union jobs within the Penn facilities operation were not eliminated as part of the outsourcing agreement, other positions had been. Workers from across campus were concerned that if the university could eliminate some jobs through outsourcing, then their own jobs were in danger.
The basic reorganization that came with the outsourcing divided the campus into multiple zones where trades and managers work together in a concentrated number of buildings. This arrangement still exists. But the personnel structure the outsourcing arrangement put into place did not work. Managers without trade expertise were trying to direct workers whose jobs they knew little about, and were unable to effectively accomplish repairs or facilities-related requests. This, referred to as the “glass wall” effect, caused friction and confusion that affected service to the Penn community, according to executive director of facilities Mike Coleman, one of only two remaining Trammell Crow hires at Penn. Despite the problems discussed above, the outsourcing arrangement did bring about some positive change for the institution. Costs are now tracked, and building administrators receive regular, credible reports about the costs in their buildings.
When the outsourcing arrangement ended, Trammell Crow personnel working at Penn became Penn employees, and relationships with existing Penn facilities personnel improved dramatically. According to Betsy Robinson, director of facilities services and the only other original Trammell Crow employee to remain on Penn’s payroll, a new feeling of camaraderie and collegiality came about when building administrators no longer felt that their jobs were threatened by outsourcing.
The zone structure allows for transparency and uses the strengths of supervisors and trades. The “glass wall” has been shattered. Facilities managers deal with all customer-related issues among the buildings within their zones, and serve as the sole contact for building administrators to address and manage their concerns. Supervisors among the various trades work alongside the point-of-service facilities managers to make sure the trades respond appropriately to the concerns in the field. Each of these individuals needs to take a “leap of faith,” according to Coleman, to trust each other’s judgment and expertise to best serve their customers. Coleman pointed as well to increased transparency in decision making, creating accountability throughout the facilities operation.
Although the outsourcing arrangement was not effective in the long run, it seems clear that Penn’s facilities operation is in better shape now as a result of the changes made by Trammell Crow. In a university environment of committee work, consensus building, and constant consultation, it proved impossible to institute the kinds of personnel and business process changes that Trammel Crow attempted. The institution made the best decision both by outsourcing to Trammel Crow and then by abandoning the outsourcing agreement, according to former Trammel Crow employee Coleman. The Penn facilities operation is much better positioned today than it was ten years ago, thanks to the commitment, hard work, and perseverance of senior management determined to overcome the major personnel and operational problems that occurred before 1998. It appears that Penn is approaching that ten-year anniversary with much to celebrate.
Jerel Wohl is the director of fiscal operations at the law school of the University of Pennsylvania, and is adjunct professor in finance at Drexel University.
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