Contract High

State Program Favoring Disabled Stirs Debate

A state program pushes agencies to skip competitive bidding for more than $100 million in annual purchases in favor of hiring nonprofits that employ disabled workers.

Bruce Marshall Jr., with Easter Seals Central Texas, performs landscaping work near a Department of Public Safety office in Austin.
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Contract High is an occasional series looking at how Texas outsourced crucial state services for two decades — and got smoked.

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Forty years ago, Texas found a way to help more disabled workers find jobs. When shopping for a lengthy list of products and services, state agencies began giving preference to a network of nonprofits that employ the disabled.

The fruits are visible across state government, from the landscaping crew at the Employees Retirement System’s offices to the hand soap in the Department of Transportation bathrooms, to the temporary staffers hired by the Department of Public Safety.

Though its broad goals are widely praised, the way the State Use program is run raises questions of fairness and accountability. 

  • More than $100 million worth of contracts pass through the program annually, sidestepping Texas’ competitive bidding rules. It is not unusual for agencies to wind up paying a higher price than they would in the open market.
  • In some cases, the disabled workers employed under state contracts are paid well below minimum wage. And the state does not effectively track how these organizations are improving the lives of the disabled “beyond the singular goal of securing paid employment,” according to a recent report.
  • State agencies can end up in a bind when one of the nonprofits is unable to fulfill the terms of a contract.

With contracting scandals ricocheting around the Capitol, lawmakers are taking a close look at every aspect of the state’s contracting system. That includes the State Use program, though when questioning the delicate efforts to find meaningful work for people with conditions including autism, cerebral palsy and Down syndrome, easy answers are hard to find.

“These people cannot protect themselves,” state Rep. Ron Simmons, R-Carrollton, said at a November hearing on the program. “We have to be over the top in protecting what we’re doing for these people.”  

Through the program, 121 community rehabilitation providers sell products and services to Texas agencies. Under state rules, at least 75 percent of the employees working on state contracts must be disabled. Some providers, like local chapters of the Lighthouse for the Blind, focus on hiring people with visual impairments. Others, like Easter Seals Central Texas, employ a range of disabled Texans.

“These are folks who are unemployable elsewhere,” said Tod Marvin, president of Easter Seals Central Texas, which does landscaping work for many state agencies. “A number of them come out of the criminal justice system with a disability.”

In 2013, 45 percent of those employed through the program suffered from a mental illness or developmental disability, according to state records. Eleven percent had a physical impairment. Smaller amounts suffered from visual or hearing impairments, or were former substance abusers. Thirteen percent fell into the category of “other,” which includes attention deficit disorder, severe diabetes and dyslexia.

A nine-member unpaid board, the Texas Council on Purchasing from People with Disabilities, oversees the program, and has a single paid employee. Most of the administrative work is contracted out to TIBH Industries, an Austin-based nonprofit. Cities and school districts are also allowed to award contracts through the program, and Houston, Austin and El Paso rank among the top users.

 

With unemployment rates among the disabled more than double those for the broader population, program supporters say it is sorely needed.

“People have biases against people with disabilities that prevent them from selecting someone with disabilities for a job,” said Charlie Graham, president of Peak Performers, which helps fill temporary positions for disabled people at state agencies, including accountants and information technology professionals. “There are concerns about being able to get the work done, done on time and done to the customer’s satisfaction.”

For nonprofits like Goodwill Industries of South Texas, helping disabled people find work is just one of the benefits, according to spokeswoman Marjorie Boudreaux. She recalled a woman with bipolar disorder who was having trouble keeping a job. Goodwill was able to get her a temporary job with the Health and Human Services Commission, while also providing counseling. HHSC eventually hired her full time.

“Some people will, for whatever reason, not know how to manage their disability,” Boudreaux said. “Then they go through Goodwill and get case management. It helps guide someone to make better choices for themselves.”

Balancing Price and People

It is undisputed that Texas agencies often pay more for products and services through the State Use program than they would otherwise. Under state law, agencies must ignore the traditional competitive bidding process and purchase certain items and services through TIBH. If TIBH can’t find a nonprofit in its program to meet an agency’s specific needs, the agency can circumvent the program but must note it in monthly “exception reports.”

Some of the program’s prices are at or below what would be available in a competitive bid process. Others are clearly higher. In its most recent review of the program, the state Sunset Commission found that one state agency that could have cut its janitorial costs nearly in half outside of the State Use program. The agency was paying $15,992 annually, while it could have paid $8,632 on the open market.

“That’s a number that jumps out at me,” state Sen. Jane Nelson, the Sunset Commission's chairwoman, said at a hearing in November.

Many products sold through the program also cost significantly more than they likely would if purchased in a competitive market. A review of state records suggests state agencies are paying more for products like USB drives, soda cans and hand soap in order to foster job opportunities for the disabled.

But the nonprofits don’t manufacture these products themselves, raising questions about the value of those jobs.

Nonprofits in the program can buy commodities in bulk and repackage them for smaller agency purchases, but some value must be added in the process, according to Kelvin Moore, the council’s program administrator.

“Pass-throughs are not allowed; therefore, solely affixing a packaging label to a commodity does not qualify,” Moore wrote in an email. (The council declined requests for an in-person or phone interview. It agreed to answer questions via email, though insisted that all questions go through the governor’s office.)

 

Currently, nonprofits suggest prices for their products and services to TIBH, which passes its pricing recommendations on to the council for approval. Nonprofits in the program do not compete against one another on price.

TIBH President Fred Weber said his office and the council must keep their prices competitive because state agencies can choose to circumvent the program if TIBH can’t find a nonprofit that can meet their needs. Sometimes, if a nonprofit suggests a price for a product or service that seems too high based on what the state can get elsewhere, TIBH staff will tell them to work to make it lower.

Yet he also acknowledged that the program isn’t designed to provide the state the lowest price possible, particularly given the extra services many nonprofits provide to their workers such as counseling and training.

“There’s more than what’s going on with the project than the low-bid price,” Weber said. “It’s how is it helping people with disabilities?”

Some lawmakers have questioned whether TIBH should play such a central role in pricing, given that its entire revenue stream, as well as the salaries and bonuses paid to employees, is based on commissions of 5 to 6 percent on sales through the State Use program.

"I don't want to say the fox guarding the henhouse, but if they're recommending to the council the appropriate prices and then they get a management fee based on their prices, there’s the possibility of a conflict of interest,” Nelson said.

In the 2013 fiscal year, TIBH made $7.5 million in management fees from state purchases. Weber said that revenue must be weighed against the work of TIBH’s 55-person staff, which handles thousands of payments each year, as well as managing the contracts and marketing the program to state agencies.

Wages as Low as 61 Cents an Hour

Since 2001, state purchases through the program have nearly doubled, and advocates point to that as a benchmark of success. Yet the number of jobs created and maintained for people with disabilities dropped 7 percent over that period. Since 2005, the number of people with disabilities placed into the broader job market through the program fell 55 percent.

And nonprofits have drawn criticism over how much their disabled workforce gets paid.

In certain cases, the U.S. Department of Labor grants special permission allowing companies to pay disabled workers less than minimum wage. More than 100 such Texas firms, often called sheltered workshops, have that permission, including nine in the State Use program. Those nine providers employ 10 percent of the more than 6,000 disabled workers in the program, according to the Sunset report. Wages range from 61 cents an hour to just below the minimum wage of $7.25. Pay is usually determined by worker productivity.

“What we’re talking about with the State Use program is state-sanctioned discrimination,” said Shaun Bickley, a self-advocate coordinator with Texas Advocates, a group that lobbies for better treatment of people with disabilities. “You can pay a worker less if they’re slower but only if they have a disability.”

David Dodson, the president of Expanco in Fort Worth, strongly disagrees with that sentiment. The firm has more than 130 disabled people working on state and federal contracts, as well as for companies like Lockheed Martin. Much of the work is repetitive and simple, while other aspects, like document shredding, require more coordination.

The majority of Expanco’s workers function “well below 50 percent” compared with a nondisabled person, Dodson said. The pay for disabled Expanco workers is pegged to an $11-per-hour wage for a normally productive worker.

Chareece Lugen assembles a small part at Expanco Inc. in Fort Worth on Feb. 20, 2015.

“If the standard is produce 100 an hour and they produce 100 an hour, they’ll get $11,” Dodson said. “If they produce 50 an hour, they’ll get half that pay.” About half of the firm’s workers make between $2 and $5, he said.

Dodson said descriptions of his firm as some sort of sweatshop are wrong-headed. Those with the most severe disabilities are unable to work a six-hour shift and will spend much of their time in a classroom environment learning basic skills like counting. 

“They’re here because they want to be members of productive society, they want opportunities to be part of the community, and we want to give them that opportunity,” Dodson said. “We couldn’t afford to pay them minimum wages and still maintain the contracts we have.”

Jean Langendorf, with Disability Rights Texas, noted that the state favors vocational programs for people with disabilities that focus on helping clients establish a living wage in competitive employment. The State Use program is meant to be held to a similar standard. Sheltered workshops in particular haven’t been scrutinized carefully enough on that front, she said.

“If you look at a lot of these programs, many of those individuals have been with them for many, many years,” she said.

At the Austin State Supported Living Center, more capable workers may assemble bookcases and desks, according to Shannon Thorne, director of community relations. Those with more severe disabilities will be paid less, often below minimum wage, for simpler work like repackaging products purchased in bulk. Since the center’s employees also live there, their pay is generally viewed as disposable income.

The center draws more than $400,000 in business from the State Use program annually. Thorne said the staff is always looking for employment opportunities for workers outside of the shelter. For some of their residents, that’s not practical and, perhaps just as importantly, not what those workers would want.

“Some people enjoy coming to work where they live on campus and stick with that,” Thorne said. “We’re always looking to pay as much as possible as we can, but the importance of having those jobs and that work is kind of pre-eminent.”

Balancing what is best for employees can be a complex proposition, and some state officials are not convinced the council and TIBH are best suited for that job. The Sunset Commission issued a critical report of the council and TIBH last year. Among its concerns was a lack of effort to ensure that the program is actually improving the lives of Texans with disabilities.

“Information does not exist to determine whether or not the benefits the State Use Program provides people with disabilities outweigh the costs of the program to state agencies and the State overall,” the report reads.

The commission has proposed improving oversight by abolishing the council and shifting its functions to the state comptroller. Council chairman John Luna has warned that the comptroller’s office can’t understand the disabled community’s needs. He described the council’s current arrangement with TIBH as “a proven example of a private sector success in a not-for-profit structure” and urged lawmakers to avoid introducing “unnecessary government involvement” into the State Use program.

“It seems to us that we are looking to fix a problem that frankly does not exist,” Luna said at a hearing in November.

Small Nonprofits Can Get Overwhelmed

There’s no bigger supporter of the State Use program than TxDOT. The agency spent $41.8 million through the program in the 2013 fiscal year, making up nearly a third of the program’s total contracts. Yet even TxDOT’s work with the program doesn’t always go smoothly.

In the fall of 2013, TxDOT decided to outfit most of its workers in new bright red and yellow shirts specially designed to make sure they are easily visible to drivers while protecting them from the sun and heat.

The El Paso Lighthouse for the Blind, which employs 16 disabled people, already manufactured the agency’s safety vests and told TxDOT officials about its interest in manufacturing the shirts as well, according to TxDOT emails obtained by The Texas Tribune. TxDOT officials needed 57,788 shirts in a hurry and felt that the El Paso Lighthouse couldn’t produce them quickly enough. In November 2013, it awarded the $1.1 million contract to the lowest bidder, the Burgoon Company.

Soon after, the State Use oversight council decided to add TxDOT’s new shirt to the State Use program, a move that effectively made El Paso Lighthouse the default supplier for future purchases. Beginning in March 2014, TxDOT began buying all its replacement shirts through El Paso Lighthouse. Within months, the nonprofit was running behind on orders.

In an email to other TxDOT staffers in October, Scott Parker, a maintenance section assistant in TxDOT’s Beaumont district, wrote that the delays were creating a safety concern.

“We have some employees that are wearing torn or stained shirts, some that are washing them daily because they only have 1 or 2,” Parker wrote. “The only answer I can give them is that they are ordered.”

Weber said the Dallas Lighthouse for the Blind will soon start producing the shirts as well.

“El Paso has had issues with this project,” Weber said. “We’re finalizing the details so we can have two Lighthouses working on the project.”

TxDOT ultimately ended up having to order some replacement shirts from its original contractor, the Burgoon Company.

“These exception orders were made to allow the TIBH production timeline to catch up with TxDOT’s need for shirts after the initial order,” TxDOT spokeswoman Becky Ozuna said.

Though costs vary depending on sizes and styles, TxDOT has paid an average of $24.35 per shirt for 7,569 shirts through the State Use program, compared with $19.50 per shirt it originally paid to Burgoon.

El Paso Lighthouse CEO Thea Chambers said the episode demonstrated the value of the State Use program.

“As with any venture, there is always a learning curve, and everyone involved has to adapt,” Chambers said. “The commitment to the process has produced a positive result.”

Disclosure: Lockheed Martin Aeronautics is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.