Obamacare: Could It Decrease Outsourcing?

In the short term, Obamacare is challenging building service contractors to make some tough choices about whether they will comply with the law or face potentially less-expensive penalties. But beyond the immediate cost implications and compliance questions, BSCs are legitimately worried that this law could be a serious game-changer for the contract cleaning industry.

“My biggest fear? It’s that the competitive or cost advantage we have as contractors is going to be eroded,” says John Ezzo, president of New Image Building Services, Mount Clemens, Mich. 

“We’re going to be more productive, more in tune with what’s available out there as far as equipment and processes and training to be more productive — but certainly our cost per man, per FTE, is going to go up, and it might rival that of our customers,” Ezzo says.

BSCs who have invested the time and money into education, training and technology will still have the advantage of their expertise, Ezzo says, but that may not stop customers from going in-house. In fact, two of Ezzo’s major customers — a property management firm and a hospital group — have already announced plans to cease outsourcing of cleaning.

“There’s this movement from people who have always outsourced to go in-house and I think that’s probably the biggest threat to the industry, is that if we lose the cost advantage as a contractor, then what motivation is there for the company, the end user, to outsource? Unless they just don’t want to deal with the cleaning and the security,” Ezzo says. “But you can see in a school or a hospital, unless there’s a real cost advantage, they might prefer to have their own people.” 

BSCs may be forced to lay employees off to cut down on labor costs in order to pay for benefits, or they will have to raise their prices — and if customers themselves are also under additional budget pressure because of having to insure their own employees, they may be more likely to give insourcing a try in an attempt to save money.

Most of Ezzo’s approximately 1,000 employees are insured elsewhere, as a recent employee survey found. Only 11 percent are not insured at all.

The most frustrating part of it all for employers is the uncertainty, not knowing whether the law will change or not, and therefore not being able to prepare for costs down the road.

“If it’s still a moving target, it’s very difficult to have any certainty in budgeting and pricing going forward, like if someone says to us now, ‘We want you to give us a price for the next three years,’ we can’t. It’s almost impossible and those are out there,” Ezzo says. “With the uncertainty going on, how can we give three-year pricing? You have to get negotiate creative language in the contract, that when we do find out what this is going to cost, that there’s a way we can adjust the contract accordingly. But that’s awfully hard to get approved.”

Some customers are sympathetic to the plight of their janitorial contractors, but others will respond with, “That’s your problem — that’s why we outsource,” Ezzo says. “And therein lies the ultimate threat. … So the uncertainty’s going to be a big problem, and I think it will impact the attractiveness of outsourcing the service.” 

To read more about how PPACA is affecting BSCs, click here. For key terms, click here. To read the health reform timeline through 2014, click here.