In a time when many companies are expanding their use of contractor services, the vegetation management department at Arizona Public Service Co. (APS; Phoenix, Arizona, U.S.) analyzed whether it was more beneficial to follow that course or pursue another. Keeping in line with APS's commitment to deliver shareholder value, maintain customer satisfaction and provide an environment that is both safe and rewarding for employees, APS dedicated a team to address this significant issue.

Since 2001, APS had outsourced 100% of its vegetation management services. The company had been mostly pleased with the work completed by its contract partners. However, after considerable research, cost analysis and discussion, APS ultimately found there were numerous advantages to bringing the work in-house. Through careful planning, APS has minimized obstacles and made tremendous progress toward achieving its business goals.

At the end of 1999, the line-clearance contracts APS had in place with its vendors expired. APS invited contractors to submit proposals for the coming year. Two contractors, a nonunion company and a union company, were both successful bidders and won portions of the APS contract in January 2000.

Because APS's line-clearance program was founded on competition, selecting two companies for the contract was no mistake. By having two different partners instead of one, APS was better able to keep costs down and ensure that productivity remained high. This strategy worked well because both contractors wanted to maintain secure contracts. In addition to competing with each other, they also faced competition from others who provided vegetation management services.

However, the landscape changed a couple years later when one of APS's contractors acquired the other one. Though still operating as separate companies, the dynamics of the relationship had clearly changed. APS's edge for managing costs and quality was weakened. This resulted in contract termination between APS and the two contractors. APS had the opportunity to reevaluate how it wanted to run its vegetation management practices going forward. The company recognized that many of the contract workers had become an integral part of its team and that it would be a tremendous loss to the company to stop working with them.

During the following months, the International Brotherhood of Electrical Workers (IBEW) Local 387 ramped up its efforts to convince APS decision makers that bringing the work in-house was beneficial to employees as well as the company. At first, APS was apprehensive and somewhat unwilling to keep line-clearance service positions in-house. Before 2001, APS had five in-house vegetation management crews and also used contract vendor support. Restrictive work rules made operations difficult, and because of the resulting decrease in productivity, APS made the business decision to outsource.

In prior years, when these positions were internal, labor costs and other expenses proved significantly higher than with the outsourcing alternative. From a management and economic standpoint, the IBEW's idea of returning to the former practice of keeping line-clearance workers on staff didn't seem to be the right move for APS.

At this point, APS had several choices:

• Contract with one of the two contractors with whom it had recently worked

• Contract with other vegetation management companies

• Staff the line-clearance crews with IBEW union-represented employees.

Solving how the company was going to complete its already full workload with limited staff resources was an obstacle surely to be encountered. It became abundantly clear that more workers were necessary to maintain continuity in the workflow and ensure schedules would be uninterrupted. Hence, a strategic collaboration ensued.

Both contractors could offer many skilled workers who were already familiar with APS. And one of the contractors' employees were members of IBEW. In its proposal, that contractor inquired about using market-based wage rates, so the IBEW conducted a survey and determined the actual market wage rates for the region. After the survey was completed, the IBEW offered APS the average of the region's market wage rates. Any cost above the market rate included additional benefits and overheads, and revised work rules that would be more in line with APS's business goals.

APS decision makers listened, opened the door for discussions and began to analyze the proposals. After considerable negotiations with the IBEW, APS decided to bring more than 100 line crew worker positions, or 32 vegetation management crews, back inside the company because of significant benefits. The company benefited from wage reductions amounting to an annual cost savings in excess of US$1 million. It also had an opportunity to increase staff, achieving better statewide coverage for all programs. Importantly, IBEW Local 387 demonstrated significant innovation and flexibility in reaching a revised agreement that eliminated many of the restrictive work rules.

Under the new agreement, APS has more control over business decisions. The company has the right to monitor productivity, compare crews' productivity, and make adjustments in personnel, work hours, starting locations and so forth. APS saw the benefit of being able to ask personnel to perform any duties required by the company, and the opportunity to implement incentives, rewards and bonus systems based on safety, productivity, quality of work and customer satisfaction. For example, by being able to add more crew-reporting locations, the company has reduced per diem costs.