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Controversial Florida HR Outsourcing Deal Gets Boost

March 11, 2009
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Florida is in talks with Convergys to extend a massive HR outsourcing agreement as controversy continues to swirl around the deal.

The negotiations come after a report from the watchdog arm of the Florida Legislature called for the state to extend the nine-year, $350 million deal. Florida’s Department of Management Services is moving ahead with the report’s recommendations, department Secretary Linda South said Tuesday, March 10.

“We’ve already kicked off the negotiations with Convergys,” South said, adding an agreement to extend the contract from one to several years could be struck in the next six months.

But a union representing state employees remains critical of the privatization deal. It’s not clear Convergys has improved its handling of sensitive data, said Alma Gonzalez, special counsel to the Florida council of the American Federation of State, County and Municipal Employees.

“The People First contract was never a good idea,” Gonzalez says. “To extend it continues a bad idea.”

Citing ongoing contract negotiations, a Convergys spokeswoman declined to comment for this story.

Just a few years ago, it seemed unlikely that Florida would want to continue its relationship with Convergys. The 2002 deal for services including payroll, benefits and human resource administration—one of the largest public-sector HR outsourcing contracts—ran into a host of problems. There were delays and glitches. The state said employee data was improperly sent to India through a subcontractor. And the amount of savings expected from the deal has plummeted.

South said the state and Cincinnati-based Convergys largely buried the hatchet in an amendment to the contract signed last year. The state absolved Convergys of blame associated with contract troubles and gave up some pieces of the original deal, such as a performance management system, she said. In return, South said, Florida gained more than 130 concessions.

“Amendment 10,” as the agreement is known, allows both sides to look good, South said.

That reconciliation informed the recent report advocating for a contract extension. Published in January and written for the Office of Program Policy Analysis and Government Accountability by consulting firm EquaTerra, the document offered a number of reasons for sticking with Convergys.

Among these were that “the State is getting fair value from the current contract with Convergys—specifically as relates to the PEPY [per employee per year] cost of services.” The report pegged the PEPY cost of the People First deal to be $290.

The report also advised the state to pursue another option even as it seeks to extend the contract with Convergys. The recommended second option is to find a new vendor to host the People First system, as well as bring service centers back in-house.

South says the state is working on that alternative as well should talks with Convergys not pan out.

The HR outsourcing industry has been hurting of late, partly because the recession has been slowing deals. Neil McEwen, a consultant with advisory firm PA Consulting Group, said the EquaTerra report “is “a vote of confidence for multiprocess HR outsourcing.”

—Ed Frauenheim

Workforce Management’s online news feed is now available via Twitter.

 

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