How third-party contracts can erode public safety, and what government can do

Many governments are rethinking their reliance on third-party contractors in critical sectors—from healthcare to construction—where public safety, worker protections, and societal stability are at stake. Outsourcing core labor can introduce substantial risks, including reduced accountability, weakened training or safety standards, and labor instability. This article examines real-world legislation and case studies from the United States and Nordic countries that restrict third-party contractor labor, highlighting laws promoting direct employment, outcomes of these policies for safety and quality, and indirect procurement or labor standards that achieve similar ends.

The U.S. Approach: Policies Curbing Outsourcing of Essential Labor

Public Services: Keeping Essential Government Functions In-House

In the U.S., outright bans on outsourcing are uncommon federally, but state and local initiatives increasingly limit third-party labor in critical public services. For example, California law restricts outsourcing general government functions, permitting privatization only for specialized services. A landmark 2012 ruling halted Costa Mesa’s attempt to outsource essential municipal services, reinforcing this stance.

Illinois and other states have banned private prisons, asserting incarceration should remain under direct public oversight due to safety and humane conditions concerns.

Healthcare Sector: Regulating Temporary Staffing

Healthcare has faced challenges with expensive and exploitative temporary staffing. During the COVID-19 pandemic, at least 14 states proposed laws to curb excessive pricing by nursing staffing agencies. Connecticut and Iowa introduced transparency mandates and prohibited restrictive clauses in staffing contracts, while New York banned staffing agencies from charging hospitals fees when agency nurses were directly hired.

Additionally, California’s strict nurse-to-patient ratio law encourages hospitals to rely on permanent, stable staff, indirectly discouraging excessive use of temporary contractors.

Construction and Infrastructure: Labor Standards and Accountability

Construction frequently involves complex subcontracting, so U.S. policy primarily aims to raise labor standards rather than banning outsourcing outright. The federal Davis-Bacon Act mandates prevailing wages on federally funded construction, removing incentives to use cheap, outsourced labor.

Project Labor Agreements (PLAs) further ensure high standards, mandating unionized or equivalently skilled labor on major projects. PLAs improve safety outcomes and maintain consistent workforce quality. California specifically holds general contractors liable for unpaid wages by subcontractors, incentivizing direct employment and accountability (California AB 1701).

IT and Critical Infrastructure: Restrictions with Security in Mind

Several states, including New Jersey and New York, restrict outsourcing government IT functions overseas. Florida enacted a law in 2023 explicitly banning healthcare providers from offshoring sensitive patient data management, prioritizing security and domestic accountability.

Nordic Models: Emphasizing Direct Employment in Essential Sectors

Nordic countries provide clear precedents limiting staffing agencies and contractors to protect workers and maintain high quality.

Norway: Aggressive Restrictions in Construction

Norway enacted strong restrictions in 2023, prohibiting temporary agency labor for regular construction tasks, particularly around Oslo, to ensure worker safety and employment stability. Norwegian law now requires agency workers employed continuously by one client for three years to be offered permanent positions, reinforcing direct hiring practices.

Sweden: Encouraging Permanent Transitions from Agency Work

Sweden’s 2022 amendments to its Agency Work Act mandate that workers continuously employed via agencies for 24 months within three years must be offered permanent employment or significant severance. Public-sector organizations cannot opt out, strengthening the incentive for stable, direct employment relationships.

Broader European Context

EU regulations require equal pay and working conditions for temporary agency workers, reducing the financial attractiveness of outsourcing. Spain and France further restricted temporary employment, mandating conversion of prolonged temporary contracts into permanent positions, sharply reducing precarious employment arrangements.

Impacts and Outcomes: Improved Safety, Stability, and Worker Protection

Policies limiting outsourcing in critical sectors consistently align responsibility with control, delivering multiple benefits:

• Enhanced Safety and Quality: Directly employed workers demonstrate improved safety compliance, training consistency, and superior service quality.

• Better Working Conditions: Restrictions like Sweden’s 24-month rule and prevailing wage laws ensure fair pay, career paths, and stable employment, reducing precarity and fostering economic resilience.

• Public Trust and Service Continuity: Limiting outsourcing maintains institutional knowledge, consistency, and trust, vital in sectors like healthcare and emergency services.

• Economic Stability: Stable, directly employed workforces underpin strong community economies and social stability, minimizing economic disruptions and labor disputes.

Real-world analogs from the U.S. and Nordic countries highlight a clear policy shift toward limiting outsourcing in essential sectors. Whether through direct employment mandates, rigorous standards for contractors, or tighter regulation of staffing agencies, the underlying principle is increasingly recognized: some jobs—emergency responders, healthcare professionals, and construction workers building critical infrastructure—are too essential to outsource freely.

These case studies illustrate tangible outcomes: improved worker safety, better quality outcomes, greater economic and social stability, and higher public trust. Policymakers worldwide might reconsider outsourcing, not as mere economic flexibility, but as a significant strategic and ethical choice affecting the broader social contract.

In critical industries, the precedent is clear: responsibility and direct oversight cannot—and should not—be outsourced.