BenefitsEnabling TechnologyEngaged WorkforceMulti-process HRSourcing

In Closely Watched Florida, HRO Renewal Is Advised

EquaTerra Study suggests that the state should extend its relationship with Convergys for maximum savings.

by Debbie Bolla
When it comes to public sector HRO, all eyes are on the state of Florida. In its landmark 2002 deal, the state contracted with enterprise HRO vendor Convergys to deliver an
end-to-end solution that included an HR management system—People First—to provide services to approximately 230,000 state employees. In less than three years, that contract expires, and the state is now weighing its options.

To decide how to proceed, the Florida state legislature through its Office of Program Policy Analysis and Government Accountability (OPPAGA) last September hired advisory firm EquaTerra to assess the current contract and determine the best solution for moving forward. The result of the report released at the end of January: a strong recommendation to renegotiate and renew the contract with Convergys—one of several options it found posed the least risk and could potentially result in savings of  $31.2 million, further supporting the case for outsourcing services in a large government entity.

“We made the recommendation since improvements were made by Convergys [from the early days of the contract] and the relationship has improved,” said Glenn Davidson, managing director of the public sector practice at EquaTerra.

During the start of the seven-year relationship, both parties experienced challenges and difficulties with People First. The system encompasses HR services including personnel transactions, payroll, benefits administration, leave, staffing, and time and attendance. EquaTerra in its study had found that the state in part caused a rocky start in the relationship because it failed to standardize processes prior to its implementation of People First. It also didn’t allocate adequate funding for change management or repairs. At the same time, EquaTerra reported, Covergys implemented older technology with limited features and didn’t have sufficient resources to make enhancements.
    
But not all was negative about the deal. During the tenure of the contract, an SAP system was updated, creating a strong infrastructure as well as a more efficient HCMS with multi-tiered solutions. And the state probably benefited from better service than it could have achieved on its own.

Not surprisingly, cost is a driving factor for legislative officials pondering the fate of the HRO contract. “There will be a return on investment for Florida with a renewal contract,” said Davidson. With the People First platform, the state invested more than $250 million, and EquaTerra found that renewing with Convergys could reduce annual operating costs. The study also noted that this option requires only a modest upfront investment and that the state currently pays a fair price per employee per year (PEPY) of approximately $290, a price that compares favorably with many commercial engagements. If it renewed with Convergys, Florida would also maintain a sound intact infrastructure and continued upgrades to People First.

Although it made more financial sense for to continue to outsource to Convergys, EquaTerra also made a secondary recommendation of employing blended services. Under this proposal, Florida would retain People First but contract a new provider for technology responsibilities (SAP and Authoria) and assume some HR responsibilities internally (service centers and supporting technology). Noted advantages of this option include a solid return on the original People First investment and a low initial investment if software transfer rights are reasonable. If the state chose this option, it would have enough time between now and the end of the current contract to implement the blended solution. However, such a solution would require a $5.6 to $9.4 million investment with potential savings of $9.75, while renegotiating the current accord would cost $750,000 to $1.3 million and produce $31.2 million in potential savings. Davidson said it seemed the choice is clear.

“Knowing the State of Florida’s current budget, it would surprise me if they didn’t use all the savings they can get,” said Davidson. “With our recommendation, the states’ investment would be for an advisor, labor cost/external support, and investment from agency, which is much cheaper than a new license, new software, and a new infrastructure.”

If Florida opts for renewal, the process would take six months to a year to complete Davidson said, creating a smooth transition into a new contract in fiscal year 2010 prior to expiration in 2011. Contract term would be five to seven years. At press time, Florida officials said they were still evaluating the recommendations and declined to comment.

Florida is one of only two states to ever execute outsourcing of this size for HR services; Texas is the other. The Lonestar State recently extended its outsourcing contract, also with Convergys, by a year. A similar study may be in its future.

“All state eyes have been focused on this contract since inception,” said Davidson. “I think this report can explain the value of HR outsourcing. HR shared services is another option. It’s less of an investment and it’s still moving toward an outsourced model.”
 

Tags: Benefits, Enabling Technology, Engaged Workforce, Multi-process HR, Sourcing

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