Privatization
Reinvented Investigations Unit Produces Big Payoff for Taxpayers

excerpt from the FEND's Government Performance Report November 3, 1997

The "P word"-privatization-evokes strong responses from many people. For federal-sector unions and many government workers, at worst, it is a 13-letter invitation to disaster. At best, it is a short-sighted surrender to private financial interests. However, early results of the first and boldest federal privatization experiment may give pause-or at least cause for wonder-to critics of the concept. That's because in its first 15 months of operation, the first privatized spin-off of a federal work unit has produced more than $20 million in savings to U.S. taxpayers.

Total savings to the public of the first privatization of a U.S. government organization amounted to $20.4 million during the 15 months the U.S. investigations services, a newly formed corporation, has been up and running, according to the Office of Personnel Management. USIS is a private, employee stock ownership plan (ESOP) company created in July 1996 as a spin-off of OPM's former Office of Federal Investigations. OPM decided to create the ESOP spin-off as an alternative to outright elimination of more than 700 jobs in the investigations unit, which had been targeted for closure because of dwindling demand and high costs.

To date, the results of the ESOP experiment have far exceeded expectations. In little more than a year of operation, USIS paid $10.4 million in new tax revenues and produced $3.5 million in personnel cost savings, including $1.5 million in pension costs, $300,000 in contributions to the Thrift Sayings Plan, $900.000 in FICA costs, and $800,000 in COLA payments. In addition, the unit is cre4ited with saving taxpayers another $6.5 million in the form of reduced investigation costs for government agencies. These savings came from $1 million in cuts in the price of investigations provided under the services contract between USIS and OPM as well as $4.6 million in projected savings realized through new investigative procedures, and the USIS's refusal to take an annual increase equal to the cost of inflation ($0.9 million for two years) as stipulated in the company's contract with OPM.

Saying that he is proud of the new company's accomplishments, Phil Harper, USIS CEO, says that the OPM cost-savings estimates are conservative. Harper points out that USIS has retained 86% of OPM's investigative personnel at compensation packages that are equal to or better than the pay those workers received from the federal government. In addition, employees have received company stock equal to about ten percent of their salaries in the firm's retirement ESOP program. They also can participate in the company s 401(k) plan.

The company which is now valued at more than $30 million dollars, had a 24 - 25 % growth in revenue last fiscal year. Harper says he projects the company will be a $50 million company in another 12-16 months. USIS has developed a new customer base within the federal government by reaching out to agencies that in the past did their own investigations. It also has negotiated contracts with state and local government agencies and with some Fortune 100 companies. Its product offerings have expanded to include workers' comp investigations. Background checks for municipal and state workers, EEOC investigations and fact-finding investigations of all types. Although the firm's core contract is still with OPM, USIS currently has 29 different contracts with clients ranging from the Albuquerque Public Schools and a Maryland county's public safety department to the Indian Gaming Commission in Michigan. USIS is even considering purchasing companies whose human resource services complement its investigations services.

Harper says that an employee survey conducted by USIS early this year showed that only one in four of the firm's employees would prefer to be still working for the federal government and that only one in ten plans to find another job somewhere else in the future. Almost 80% of the respondents said they were proud to work at USIS and 74% believed their total pay was good, with 64% believing their pay was better than average for their region. (USIS has 125 offices in the United States and is the largest investigations company in the country.) Approximately three-quarters of the survey respondents gave good marks to USIS on most measures of employment satisfaction, including operations center support for the field, putting customer needs first, fair expectations, and good benefits pack- ages. While USIS "can't compete with the 250 plans of the federal government," Harper says, "We have a good heath plan with three good options for employees."

USIS recently established a relationship with the Wharton School of Business to provide its managers with courses that will give them the knowledge they need to speak the language of the private sector. "The idea is to flow back and forth between national duty and national purpose and services for the private and state and local sectors," Harper says. USIS also tries to promote from within whenever possible, and has established new training programs for its investigations personnel. Harper believes strongly in training all levels of the company for the future. "Data transcribers should be able to rise to the highest-paying production jobs in the company," he says.

However, despite USIS 's considerable success, Harper is skeptical that very many organizations have the will to make privatization work. Noting that "there isn't much of a constituency for change," he says that "many people just hope the idea will go away."