oversight

Social Service Privatization: Expansion Poses Challenges in Ensuring Accountability for Program Results

Published by the Government Accountability Office on 1997-10-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Subcommittee
                on Human Resources, Committee on
                Government Reform and Oversight,
                House of Representatives

October 1997
                SOCIAL SERVICE
                PRIVATIZATION
                Expansion Poses
                Challenges in Ensuring
                Accountability for
                Program Results




GAO/HEHS-98-6
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-276630

      October 20, 1997

      The Honorable Christopher Shays
      Chairman, Subcommittee on Human Resources and
        Intergovernmental Relations
      Committee on Government Reform and Oversight
      House of Representatives

      Dear Mr. Chairman:

      Political leaders and program managers are responding to calls for
      improved service delivery and reduced costs by rethinking the role
      government plays in providing services. Even though governments have
      for decades privatized a broad range of government social services,
      interest has been renewed in privatization as a means of coping with
      constraints on public resources. Moreover, recent changes in federal
      welfare legislation have focused attention on privatizing, or contracting
      out, social services, in particular. Four social programs affected by this
      legislation—child care, child welfare, child support enforcement, and new
      block grants to assist needy families—constitute a large share of the
      nation’s welfare system. Together these programs serve millions of
      children and families, and in 1996, the federal government provided states
      with about $20 billion to administer them and to provide a diverse array of
      services. Debate has focused on whether privatization improves services
      and increases efficiency and on what the appropriate role of the federal
      government is. Yet little is known about the extent and policy implications
      of privatizing these social services.

      This report, which responds to your request that we examine issues
      related to social service privatization, focuses on the following three key
      questions: (1) What is the recent history of state and local government
      efforts to privatize federally funded social services? (2) What are the key
      issues surrounding state and local privatized social services? (3) What are
      the federal policy implications of state and local social service
      privatization? To answer these questions, we reviewed and synthesized
      selected studies and articles on social service privatization. In addition, we
      interviewed state and local officials in five states that have gained some
      experience in the privatization of social services (California,
      Massachusetts, Texas, Virginia, and Wisconsin), as well as officials from
      the Department of Health and Human Services (HHS), national associations
      and advocacy groups, unions, and contractors. We focused on the four
      social service programs mentioned above. HHS establishes policies and




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                   oversees state administration of all four programs. Appendix I contains a
                   more complete discussion of our scope and methodology.


                   Since 1990, more than half of the state and local governments we
Results in Brief   contacted have increased their contracting for services, as indicated by the
                   number and type of services privatized and the percentage of social
                   service budgets paid to private contractors. The Council of State
                   Governments corroborated this trend in a 1993 national study that
                   reported that almost 80 percent of the state social service departments
                   surveyed had expanded privatization of social services in the preceding 5
                   years. Moreover, many experts we consulted expect privatization to
                   expand further. Our own research found that the recent increases in
                   privatization were most often prompted by political leaders and top
                   program managers, who were responding to an increasing demand for
                   public services and a belief that contractors can provide higher-quality
                   services more cost-effectively than can public agencies. In attempts to
                   provide more cost-effective services, for example, more states are
                   contracting out larger portions of their child support enforcement
                   programs. In addition, state and local governments are turning to
                   contractors to provide some services and support activities in which they
                   lack experience or technical expertise, such as large management
                   information systems or systems to pay program benefits electronically.

                   State and local governments face several key challenges as they plan and
                   implement strategies to privatize their social services. First is the
                   challenge to obtain sufficient competition to realize the benefits of
                   privatization. While there is some disagreement among experts, some
                   believe that the unique nature of social services may limit the number of
                   contractors able or willing to compete. The results of the few studies that
                   examine this question are inconclusive. Most state and local program
                   officials we contacted reported that they were satisfied with the number of
                   qualified bidders in their state or locality. However, some of these officials
                   expressed concern about an insufficient number of qualified bidders in
                   rural areas or in contracts requiring highly skilled staff. Second, state and
                   local governments often have little experience in developing contracts that
                   specify program results in sufficient detail to effectively hold contractors
                   accountable. Third and finally, it can be particularly difficult for states to
                   monitor performance in some social service programs, whether provided
                   directly by the government or through a contract. Weaknesses in
                   monitoring contractor performance make it difficult to ensure that all
                   intended beneficiaries have access to services and to determine whether



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             private providers achieve desired program goals and avoid unintended
             negative consequences.

             Increased privatization raises questions about how HHS will fulfill its
             obligation to ensure that broad program goals are achieved. Assessing
             program results presents a significant challenge throughout the
             government, yet it is an important component of an effective system for
             holding service providers accountable. The difficulties the states have in
             monitoring privatized social services focus attention on the need to
             improve accountability for results. Some of the state and local officials we
             interviewed believe that, to help ensure that privatized social services are
             effective, HHS should clarify its program goals and develop performance
             measures states can use to monitor and evaluate contractor efforts. The
             Government Performance and Results Act of 1993 requires federal
             agencies like HHS to focus their efforts on achieving better program results.
             While focusing on results can be complex and challenging for any
             organization, HHS’ practice of holding states accountable primarily for
             compliance with statutes and regulations may make the transition
             particularly difficult. However, promising approaches are available within
             HHS in moving to a program results orientation, such as some recent efforts
             by the federal Office of Child Support Enforcement.


             The four social service programs included in our review—child care, child
Background   welfare services, child support enforcement, and the Temporary
             Assistance for Needy Families (TANF) block grant—provide a broad range
             of services and benefits for children and families. While each program is
             administered by HHS’ Administration for Children and Families, primary
             responsibility for operating these programs rests with state governments.
             Within many states, local governments operate social service programs
             with considerable autonomy. The major goals, services, and federal
             funding for the four programs are described below.


Child Care   Federally funded child care services consist primarily of subsidized care
             for children of low-income families while their parents are working,
             seeking work, or attending training or education. Other subsidized child
             care activities include providing information, referrals, and counseling to
             help families locate and select child care programs and training for child
             care providers. State child care agencies can provide child care directly,
             arrange for care with providers through contracts or vouchers, provide




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                             cash or vouchers in advance to families, reimburse families, or use other
                             arrangements. Two settings for which states pay for care are

                         •   family day care, under which care is provided for a small group of children
                             in the caregiver’s home, and
                         •   center care, under which establishments care for a group of children in a
                             nonresidential setting, such as nonprofit centers sponsored by schools or
                             religious organizations and for-profit centers that may be independent or
                             members of a chain.

                             The primary federal child care subsidy program is the Child Care
                             Development Block Grant (CCDBG).1 In fiscal year 1996, about $2 billion
                             was distributed to states to assist low-income families obtain child care so
                             they could work or attend training or education. Under CCDBG, states are
                             not required to provide state funds to match federal funding.


Child Welfare Services       Child welfare services aim to (1) improve the conditions of children and
                             their families and (2) improve—or provide substitutes for—functions that
                             parents have difficulty performing. Whether administered by a state or
                             county government, the child welfare system is generally composed of the
                             following service components:

                         •   child protective services that entail responding to and investigating reports
                             of child abuse and neglect, identifying services for the family, and
                             determining whether to remove a child from the family’s home;
                         •   family preservation and family support services that are designed to
                             strengthen and support families who are at risk of abusing or neglecting
                             their children or losing their children to foster care and that include family
                             counseling, respite care for parents and caregivers, and services to
                             improve parenting skills and support child development;
                         •   foster care services that provide food and housing to meet the physical
                             needs of children who are removed from their homes and placed with a
                             foster family or in a group home or residential care facility until their
                             family can be reunited, the child is adopted, or some other permanent
                             placement is arranged;
                         •   adoption services that include recruiting potential adoptive parents,
                             placing children in adoptive homes, providing financial assistance to

                             1
                              The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 expanded the CCDBG
                             to include child care services that were previously authorized under title IV-A of the Social Security
                             Act and the Omnibus Budget Reconciliation Act of 1990. These services include Aid to Families With
                             Dependent Children (AFDC) Child Care, Transitional Child Care for former AFDC recipients, and
                             At-Risk Child Care for low-income working families.



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                       adoptive parents to assist in the support of special needs children, and
                       initiating proceedings to relinquish or terminate parental rights for the
                       care and custody of their children; and
                   •   independent living services that are activities for older foster
                       children—generally age 16 and older—to help them make the transition
                       from foster care to living independently.

                       Almost all states are also operating or developing an automated foster care
                       and adoption data collection system. Federal funding for child welfare
                       services totaled about $4 billion in fiscal year 1996. Nearly 75 percent of
                       these funds were for foster care services.2 Depending on the source, the
                       federal match of states’ program costs can range from 50 to 78 percent.


Child Support          The child support enforcement program enforces parental child support
Enforcement            obligations by locating noncustodial parents, establishing paternity and
                       child support orders, and collecting support payments. These services,
                       established under title IV-D of the Social Security Act, are available to both
                       welfare and nonwelfare families. In addition, states are operating or
                       developing automated management information systems to help locate
                       noncustodial parents and monitor child support cases. The federal
                       government pays two-thirds of the states’ costs to administer the child
                       support enforcement program. The states can also receive incentive funds
                       based on the cost-effectiveness of child support enforcement agencies in
                       making collections. In 1996, federal funding for program administration
                       and incentives totaled almost $3 billion.


TANF Block Grant       The Personal Responsibility and Work Opportunity Reconciliation Act of
                       1996 made major changes to the nation’s welfare system. In place of AFDC
                       and the Job Opportunities and Basic Skills Training (JOBS) programs, the
                       1996 law created a block grant for states, or TANF, that has more stringent
                       requirements than AFDC for welfare parents to obtain jobs in return for
                       their benefits.3 In 1996, the federal government spent about $11 billion on
                       AFDC benefit payments, and JOBS provided almost $1 billion to help families
                       on welfare obtain education, training, and work experience to become

                       2
                        Primary federal funding sources for child welfare services are from the following titles of the Social
                       Security Act: title IV-B, Part 1 Child Welfare Services; title IV-B, part 2 Family Preservation and Family
                       Support Services; title IV-E Foster Care; title IV-E Adoption Assistance; and title IV-E Independent
                       Living.
                       3
                        The TANF block grant also replaced AFDC Administration and the Emergency Assistance Program.
                       The latter provided emergency aid to families to avoid destitution of a child or to provide living
                       arrangements in a home for the child.



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                             self-sufficient. TANF provides states flexibility in, among other things,
                             providing assistance to needy families and promoting job preparation and
                             work. Federal spending through the TANF block grant is currently funded at
                             $16.4 billion per year. States are not required to match federal funds but
                             must maintain specified historic levels of state spending on behalf of
                             families eligible for TANF.


                             The federal, state, and local governments have for decades privatized a
Social Service               broad range of government activities in both nonsocial and social service
Privatization Has            programs. This trend is continuing. Since 1990, more than half of the state
Expanded in Recent           and local governments we contacted have increased their contracting for
                             services, as indicated by the number and type of services privatized and
Years                        the percentage of social service budgets paid to private contractors.
                             Spurred by political leaders and top program managers, states and
                             localities privatized social services in an attempt to reduce program costs
                             and improve services by using the technology and management flexibility
                             they believe private contractors offer. In addition, studies we examined
                             and federal, state, and local government officials we interviewed expect
                             privatization to increase with the enactment of recent federal welfare
                             legislation and anticipated managed care initiatives in child welfare. State
                             and local officials also anticipated increased contracting for services in the
                             child care and child support enforcement programs.


Privatization Is Not a New   Privatization is commonly defined as any process aimed at shifting
Tool                         functions and responsibilities, in whole or in part, from the government to
                             the private sector. Privatization can take various forms, including
                             divestiture, contracting out, vouchers, and public-private partnerships.
                             Most common is contracting, which typically entails efforts to obtain
                             competition among private bidders to perform government activities. With
                             contracting, the government remains the financier and is responsible for
                             managing and setting policies on the type and quality of services to be
                             provided. Depending on the program, government agencies can contract
                             with other government entities—often through cooperative
                             agreements—and with for-profit and nonprofit agencies.

                             Using a variety of strategies, the federal, state, and local governments have
                             for decades relied on private entities to provide a wide range of services
                             and program activities. Programs as diverse as corrections, transportation,
                             health services, and information resource management have been
                             privatized to varying degrees. As all levels of government attempt to meet



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                               existing or growing workloads with fewer resources, privatization has
                               more frequently been considered a viable means of service delivery.

                               Child care, child welfare, child support enforcement, and welfare-to-work
                               programs have long used contractors to provide certain services. For
                               example, most states and local governments have relied on an existing
                               network of private day care centers to provide certain child care services.
                               Foster care services in child welfare have also traditionally been provided
                               by private providers. Finally, state and local governments have also
                               generally relied on contractors to provide certain automated data
                               processing and related support activities.


State and Local                In addition to state and local governments’ past use of contractors in
Governments Increase           social services, a national study has reported recent growth in state
Social Service Privatization   privatization of these programs. In its 1993 national study, the Council of
                               State Governments reported that almost 80 percent of the state social
                               service departments surveyed in the study indicated they had expanded
                               their use of privatization of social services in the preceding 5 years.4 The
                               council’s study reported that child care services and several child welfare
                               services, such as adoption, foster care, and independent living support
                               services, were among the services in which privatization increased the
                               most.

                               During our review, we found that privatization of social services has
                               generally continued to expand, despite certain challenges confronting
                               state and local governments seeking to privatize services, as discussed
                               below. Representatives of several national associations told us that state
                               and local social service privatization has increased throughout the country
                               in the last several years, as indicated by the percentage of state and local
                               social service budgets paid to contractors.5 Among the state and local
                               governments we contacted, most officials said the percentage of program
                               budgets paid to contractors has increased since 1990.


                               4
                                The Council of State Governments is a national association representing a range of state government
                               professions, including budget, financial management, and program personnel. See also K. S. Chi,
                               “Privatization in State Government: Trends and Options,” prepared for the 55th training conference of
                               the American Society for Public Administration, Kansas City, Missouri, July 1994. While this study
                               reports growth in social service privatization based on self-reported information from state and local
                               government officials, no national data on the actual dollar volume of social service privatization are
                               available in this study or in any of the other studies we reviewed.
                               5
                                We obtained perspectives on trends in social service privatization from the National Association of
                               Counties, National Conference of State Legislatures, and the National Governors’ Association, among
                               others.



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While the percentage of funds paid to private contractors has generally
increased in the states and programs we selected, we found that the
proportion of state and local social service budgets paid to private
contractors varies widely among the programs we reviewed. According to
local program officials, for example, the Los Angeles County child support
enforcement program spent less than 5 percent of its $100 million program
budget on contracted services in 1996. In comparison, program officials
said the child care component of San Francisco’s Greater Avenues for
Independence (GAIN) program spent all its program funds, or $2.1 million,
on privatized services in 1996.6

State and local government officials we interviewed generally said that, in
addition to the increased and varied portion of program budgets spent on
privatized services, the number of functions performed by private
contractors has increased since 1990. In Virginia, for example, officials
said that the state has recently begun to contract out case management
and assessment functions in its welfare-to-work program, a function
previously performed by government employees. State and local
governments have also recently begun to privatize a broad array of child
support enforcement services. While it is not uncommon for states to
contract out certain child support enforcement activities, in 1996 we
reported that 15 states had begun to privatize all the activities of selected
child support enforcement offices in an effort to improve performance and
handle growing caseloads.7

For most of the state and local governments we interviewed, privatized
social services are now provided by nonprofit organizations, especially in
child welfare. However, most of the state and local officials we contacted
indicated that they also contract with for-profit organizations to deliver
social services. The state and local officials we interviewed told us that
among their programs the proportion of the budget for private contractors
that is spent on for-profit organizations varied, ranging from as low as zero
for child welfare to as high as 100 percent for child support enforcement.
Within each program, the proportion of funds paid to for-profit
organizations has remained about the same since 1990.




6
 The GAIN program is California’s version of the former federal JOBS program.
7
 Child Support Enforcement: Early Results on Comparability of Privatized and Public Offices
(GAO/HEHS-97-4, Dec. 16, 1996).



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States and Localities            A variety of reasons have prompted states and localities to contract out
Privatize for Various            social services. The growth in privatization has most often been prompted
Reasons                          by strong support from top government officials, an increasing demand for
                                 public services, and the belief that private contractors are able to provide
                                 higher-quality services more cost-effectively because of their management
                                 flexibility. In addition, state and local governments have chosen to
                                 contract out to compensate for the lack of government expertise in certain
                                 service areas, such as in the development of automated information
                                 systems. The following examples highlight common privatization
                                 scenarios:

                             •   Several local child support offices in Virginia each contracted with a
                                 for-profit organization to provide a full range of program services such as
                                 locating absent parents, establishing paternity and support orders, and
                                 collecting support payments. The local offices undertook these contracts
                                 to improve program effectiveness and efficiency.
                             •   Some California counties privatized job training and placement services in
                                 their GAIN program as a way to meet new state-legislated program
                                 requirements or avoid hiring additional government employees.
                             •   Some state and local governments have expanded already privatized
                                 services in programs such as child care to respond to a greater public
                                 demand for services.
                             •   Texas contracts to provide food stamp and other benefits electronically to
                                 use the technical expertise of private providers.


Privatization Expansion Is       State and local government officials and other experts told us they expect
Expected to Continue             the growth of privatization to continue. Increasingly, future trends in
                                 privatization may incorporate additional functions traditionally performed
                                 by state and local governments. For example, as a result of the recent
                                 welfare legislation, state and local governments now have greater
                                 flexibility in deciding how welfare programs will be administered,
                                 including an expanded authority that allows them to use private
                                 contractors to determine eligibility, an activity that has traditionally been
                                 conducted by government employees. Additionally, the Congress has
                                 shown greater interest in broadening the range of government activities
                                 that could be privatized in other social service programs. Such activities
                                 include eligibility and enrollment determination functions in the Medicaid
                                 and Food Stamps programs. The Clinton administration has opposed these
                                 proposals to expand privatization, stating that the certification of
                                 eligibility for benefits and related operations, such as verification of
                                 income and other eligibility factors, should remain public functions.



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                             In addition to the changes anticipated from the welfare legislation and
                             more recent legislative proposals, state and local officials anticipate that
                             privatization will continue to increase in the three other social service
                             programs we examined. In child welfare services, according to a 1997
                             Child Welfare League of America survey, 31 states are planning or
                             implementing certain management functions or use of managed care
                             approaches to apply some combination of managed care
                             principles—currently used in physical and behavioral health services—in
                             the management, financing, and delivery of child welfare services. These
                             principles include contracting to meet all the needs of a specific group of
                             clients for a set fee rather than being paid for each service they provide.
                             Also, in child care programs, states are increasingly privatizing the
                             management of their voucher systems. In these cases, contractors manage
                             the system that provides vouchers or cash certificates to families who
                             purchase child care services from authorized providers. Finally, in child
                             support enforcement, state program officials expect that more states will
                             begin to contract out the full range of child support services.


Privatized Social Services   In two California counties we contacted, county officials, after initially
Decreased in Certain         contracting out for certain services, decided to discontinue the practice
Locations                    and now have those services performed by county employees. Los Angeles
                             County, for example, had contracted with a for-profit organization to
                             perform the case management function in its GAIN program; however,
                             following a change in the composition of the county’s board of
                             supervisors, the board opposed privatizing these functions. Program
                             officials did not renew the contract. In San Bernardino County’s GAIN
                             program, a portion of the job search services was initially contracted out
                             because the county did not itself have the capacity to provide all such
                             services when the program was first implemented. Once the county hired
                             and trained the necessary public workers, the contractor’s services were
                             no longer needed and the contract was terminated. In both these cases,
                             local program officials were satisfied with the contractors’ performance.


                             Federal, state, and local government officials, union representatives,
Competition, Contract        national associations, advocacy groups, contractors, and other experts in
Development, and             social service privatization identified several challenges that state and
Monitoring Issues            local governments most often encountered when they privatized social
                             services. These challenges include obtaining a sufficient number of
Could Undermine              qualified bidders, developing sufficiently detailed contract specifications,
Privatization Goals          and implementing effective methods of monitoring contractor



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                         performance. The challenges may make it difficult for state and local
                         governments to reduce program costs and improve services. State and
                         local government officials we contacted reported mixed results from their
                         past and present efforts to privatize social services. However, few
                         empirical studies compare the program costs and quality of publicly and
                         privately provided services, and the few studies that do make such
                         comparisons report mixed results overall.


Competitive Market for   Competition has long been held as a principle central to the efficient and
Social Services Is       effective working of businesses in a free-market economy. In a
Sometimes Insufficient   competitive market, multiple parties attempt to secure the business of a
                         customer by offering the most favorable terms. Competition in relation to
                         government activities can occur when private sector organizations
                         compete among themselves or public sector organizations compete with
                         the private sector to conduct public sector business. In either case,
                         competition for government business attempts to bring the same
                         advantages of a competitive market economy—lower prices and
                         higher-quality goods or services—to the public sector.

                         Competitive markets can help governments reduce program costs and
                         improve service quality. In many cases, the benefits from competition have
                         been established for nonsocial service programs, such as trash collection,
                         traffic enforcement, and other functions intended to maintain or improve a
                         government’s infrastructure. State and local governments that have
                         contracted out public works programs competitively have documented
                         cost savings, improved service delivery, or gained customer satisfaction.8
                         By contracting out, for example, the city of Indianapolis has already
                         accrued cost savings and estimated that it would save a total of
                         $65 million, or 42 percent, in its wastewater treatment operations between
                         1994 and 1998. The city also reported that the quality of the water it
                         treated improved. In addition, New York State estimated that it saved
                         $3 million annually by contracting out certain economic development and
                         housing loan functions.

                         However, not all experts agree whether it is possible to achieve the same
                         results with privatization of social service programs. Some experts believe
                         that competition among social service providers can indeed reduce
                         program costs and improve services for children and families since, in
                         their view, private firms inherently deliver higher-quality services at lower

                         8
                          Privatization: Lessons Learned by State and Local Governments (GAO/GGD-97-48, Mar. 14, 1997).
                         Estimated cost savings and other results are as reported by the governments. We did not
                         independently verify these results.



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costs than public firms. In contrast, other experts hold that social services
are significantly different from services such as trash collection or grounds
maintenance—so different, in fact, that one cannot assume that
competition will be sufficient to increase effectiveness or reduce costs.
Several factors make it difficult to establish and maintain competitive
markets with contractors that can respond to the diverse and challenging
needs of children and families. These factors include the lack of a large
number of social service providers with sufficiently skilled labor, the high
cost of entry into the social services field, and the need for continuity of
care, particularly in services involving residential placement or long-term
therapy. Some experts believe that these constraints reduce the likelihood
of achieving the benefits anticipated from social service privatization.9
Appendix II contains a more detailed comparison of characteristics
associated with privatizing social services and nonsocial services.

Many state and local program officials we contacted reported that they
were satisfied with the number of qualified bidders in their state or
locality. However, some of these officials expressed concern about the
insufficient number of qualified bidders, especially in rural areas and when
the contracted service calls for higher-skilled labor. For example, in
certain less-urban locations, officials found only one or two contractors
with the requisite skills and expertise to provide needed services. In
Wisconsin, some county child welfare officials told us that their
less-populous locations made them dependent on a single off-site
contractor to provide needed services. As a result, program officials
believed, the contractor was less responsive to local service needs than
locally based public providers usually are. Similarly, officials in Virginia’s
welfare-to-work program said rural areas of the state have
less-competitive markets for services, thereby minimizing benefits from
contracting by raising contractor costs to levels higher than they would be
in a more competitive market.

State and local officials also encountered situations with few qualified
bidders when they contracted for activities that required higher-skilled
labor. In Texas, only one contractor bid to provide electronic benefit
transfer services for recipients of cash assistance and other benefits, and
the bid exceeded anticipated cost estimates. Faced with only one bidder,
the state had to rebid the contract and cap the funds it was willing to pay.


9
 This section was based on information from J. I. Nelson, “Social Welfare and the Market Economy,”
Social Science Quarterly (Dec. 1992); J. O’Looney, “Beyond Privatization and Service Integration:
Organizational Models for Service Delivery,” Social Service Review (Dec. 1993); and S. R. Smith and M.
Lipsky, “Privatization of Human Services: A Critique,” Nonprofits for Hire: The Welfare State in the Age
of Contracting (1994).



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Although state and local program officials reported instances of
insufficient qualified bidders, we found few empirical studies of social
service programs that examine the link between the level of competition
and costs, or service quality, and these studies taken together were
inconclusive.

Given the uncertainties of the market, several state and local governments
can use creative approaches to augment the competitive environment in
order to reduce program costs and improve services. For example, under
“managed competition” a government agency may prepare a work
proposal and submit a bid to compete with private bidders. The
government may award the contract to the bidding agency or to a private
bidder. In Wisconsin, counties are competing against nongovernment
providers to provide welfare-to-work services in the state’s Wisconsin
Works program.

Some state and local governments have configured their service delivery
system to encourage ongoing competition between private and public
providers. In some cases, a jurisdiction awards a contract to a private
provider to serve part of its caseload and allows its public agency to
continue to serve the rest. The competition fostered between public and
private providers can lead to improved services, as in both the Orange
County and San Bernardino County GAIN programs. In these counties,
program officials concluded that when public agencies provide services
side-by-side with private providers, both government personnel and
private sector personnel were motivated to improve their performance. In
Orange County, GAIN program job placements increased by 54 percent in
1995 when both the public agency and a private provider provided job
placements to different groups of clients, compared with 1994, when only
the public agency provided job placement services to all clients.

While many state and local government officials advocate privatization,
others believe that it is possible, through better management, to reduce
the costs and improve the quality of services delivered by programs that
government employees administer. Internal management techniques
include basing performance on results, consolidating and coordinating
human services, and reforming management systems. For example, the
Oregon Option, a partnership between the federal government and the
state, aims to, among other things, improve the delivery of social services
by forging partnerships among all levels of government for the purpose of
focusing on measurable results.




Page 13                                 GAO/HEHS-98-6 Social Service Privatization
                             B-276630




Officials Cited Challenges   Successful contracting requires devoting adequate attention and resources
in Developing and            to contract development and monitoring. Even when contractors provide
Monitoring Contracts         services, the government entity remains responsible for the use of the
                             public resources and the quality of the services provided. Governments
                             that privatize social services must oversee the contracts to fully protect
                             the public interest.

                             One of the most important, and often most difficult, tasks in privatizing
                             government activities is writing clear contracts with specific goals against
                             which contractors can be held accountable. Although some program
                             officials told us that they had an ample number of staff who were
                             experienced with these tasks, others said that they had an insufficient
                             number of staff with the requisite skills to prepare and negotiate contracts.
                             When contract requirements are vague, both the government and
                             contractor are left uncertain as to what the contractor is expected to
                             achieve.


Monitoring for Results Is    Contract monitoring should assess the contractor’s compliance with
Difficult                    statutes, regulations, and the terms of the agreement, as well as evaluate
                             the contractor’s performance in delivering services, achieving desired
                             program goals, and avoiding unintended negative results. In this and
                             previous reviews of privatization efforts, we found that monitoring
                             contractors’ performance was the weakest link in the privatization
                             process.10

                             Increasingly, governments at all levels are trying to hold agencies
                             accountable for results, amid pressures to demonstrate improved
                             performance while cutting costs. Privatization magnifies the importance of
                             focusing on program results, because contractor employees, unlike
                             government employees, are not directly accountable to the public.
                             However, monitoring the effectiveness of social service programs, whether
                             provided by the government or through a contract, poses special
                             challenges because program performance is often difficult to measure.

                             State and local governments have found it difficult to establish a
                             framework for identifying the desired results of social service programs
                             and to move beyond a summary of a program’s activities to distinguish
                             desired outcomes or results of those activities, such as the better
                             well-being of children and families or the community at large. For
                             example, a case worker can be held accountable for making a visit,

                             10
                               Privatization: Lessons Learned by State and Local Governments (GAO/GGD-97-48, Mar. 14, 1997).



                             Page 14                                             GAO/HEHS-98-6 Social Service Privatization
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following up with telephone calls, and performing other appropriate tasks;
however, it is not as easy to know whether the worker’s judgment was
sound and the intervention ultimately effective.11

Without a framework for specifying program results, several state and
local officials said that contracts for privatized social services tend to
focus more on the day-to-day operations of the program than on service
quality. For example, officials in San Francisco’s child care program told
us that their contracts were often written in a way that measured outputs
rather than results, using specifications such as the number of clients
served, amount of payments disbursed, and the total number of hours for
which child care was provided. In addition, monitoring efforts focused on
compliance with the numbers specified in the contracts for outputs rather
than on service quality. These practices make it difficult to hold
contractors accountable for achieving program results, such as providing
children with a safe and nurturing environment so that they can grow and
their parents can work.

Reliable and complete cost data on government activities are also needed
to assess a contractor’s overall performance and any realized cost savings.
However, data on costs of publicly provided services are not always
adequate or available to provide a sound basis for comparing publicly and
privately provided services. In some cases, preprivatization costs may not
be discernible for a comparable public entity, or the number of cases
available may be insufficient to compare public and privatized offices’
performance. In other cases, the privatized service may not have been
provided by the public agency.

To address many of the difficulties in monitoring contractor performance,
government social service agencies are in the early stages of identifying
and measuring desired results. For example, California’s state child care
agency is developing a desired-results evaluation system that will enable
state workers to more effectively monitor the results of contractors’
performance. Many agencies may need years to develop a sound set of
performance measures, since the process is iterative and contract
management systems may need updating to establish clear performance
standards and develop cost-effective monitoring systems. In the child
support enforcement program, for example, performance measures
developed jointly by HHS and the states provide the context for each state
to assess the progress contractors make toward establishing paternities,


11
 S. R. Smith and M. Lipsky, Nonprofits for Hire: The Welfare State in the Age of Contracting
(Cambridge, Mass.: Harvard University Press, 1994).



Page 15                                               GAO/HEHS-98-6 Social Service Privatization
                           B-276630




                           obtaining support orders, and collecting support payments. Developing the
                           agreed-upon program goals and performance measures was a 3-year
                           process.


Views Differ on Whether    Some experts in social service privatization have expressed concern that
Privatized Services Will   contractors, especially when motivated by profit-making goals and
Protect Recipient Rights   priorities, may be less inclined to provide equal access to services for all
                           eligible beneficiaries. These experts believe that contractors may first
                           provide services to clients who are easiest to serve, a practice commonly
                           referred to as “creaming,” leaving the more difficult cases to the
                           government to serve or leaving them unserved.

                           Among the organizations we contacted—federal, state, and local
                           governments, unions, public interest and advocacy groups, and
                           contractors—we found differing views on whether all eligible individuals
                           have the same access to privatized services as they had when such
                           services were publicly provided. Generally, federal, state, and local
                           government officials whom we interviewed were as confident in
                           contractors as they were in the government to grant equal access to
                           services for all eligible citizens. For example, an official in Wisconsin said
                           that after privatization of some county welfare-to-work services, she saw
                           no decline in client access to services. In contrast, representatives from
                           advocacy groups and unions were less confident that contractors would
                           provide equal access to services for all eligible citizens than the
                           government would. We found no conclusive research that evaluated
                           whether privatization affects access to services.

                           Various groups have also raised concerns about recent changes that
                           permit contractors to perform program activities that government
                           employees traditionally conduct. Advocacy groups, unions, and some HHS
                           officials expressed concern about privatizing activities that have
                           traditionally been viewed as governmental, such as determining eligibility
                           for program benefits or services, sanctioning beneficiaries for
                           noncompliance with program requirements, and conducting investigations
                           of child abuse and neglect for purposes of providing child protective
                           services. Under federal and state requirements, certain activities in most of
                           the programs we studied were to be performed only by government
                           employees.12 Under TANF, however, contractors can determine program

                           12
                             These activities, often described as “discretionary,” include decisions or actions that may affect the
                           level of benefits or services received by a beneficiary or that may be carried out in accordance with a
                           government’s authority to investigate and resolve reported instances of noncompliance with applicable
                           statutes and regulations.



                           Page 16                                               GAO/HEHS-98-6 Social Service Privatization
                                  B-276630




                                  eligibility. Several union representatives and contractors told us that they
                                  believe certain functions, including policy-making responsibilities and
                                  eligibility determinations, often based on confidential information
                                  provided by the service recipient and requiring the judgment of the case
                                  worker, should always be provided by government employees.


Strategies to Protect             Officials from several of the organizations we interviewed believe that
Recipient Rights Have             equal access to services and other recipient rights can be protected by
Been Identified but Are           making several practices an integral part of social service privatization.
                                  Two contractor representatives said that carefully crafted contract
Difficult to Implement            language could help ensure that contracted services remain as accessible
                                  as publicly provided services. Other officials told us that remedies for
                                  dispute resolution should be provided to help beneficiaries resolve claims
                                  against contractors. Another suggested practice would require government
                                  agencies to approve contractor recommendations or decisions regarding
                                  clients in areas traditionally under government jurisdiction. In the Los
                                  Angeles County GAIN program, for example, county officials had to approve
                                  contractor recommendations to sanction certain clients for
                                  noncompliance with program requirements before those sanctions could
                                  be applied.

                                  While these options may provide certain protections, they may be difficult
                                  to implement. The limited experiences of state and local governments in
                                  writing and monitoring contracts with clearly specified results could lead
                                  to difficulties in determining which clients are eligible for services and in
                                  determining whether or not these clients received them. In addition,
                                  advocacy groups and unions said some remedies for dispute resolution
                                  might be difficult to implement because contractors do not always give
                                  beneficiaries the information they need to resolve their claims. Finally,
                                  others noted that any additional government review of contractor
                                  decisions can be costly and can reduce contractor flexibility.


State and Local                   While numerous experts believe that contracted social services can reduce
Governments Report                costs and improve service quality, a limited number of studies and
Mixed Results in                  evaluations reveal mixed results, as illustrated by the following examples:
Privatizing Social Services   •   Our previous report on privatization of child support enforcement services
                                  found that privatized child support offices performed as well as or, in
                                  some instances, better than public programs in locating noncustodial
                                  parents, establishing paternity and support orders, and collecting support



                                  Page 17                                 GAO/HEHS-98-6 Social Service Privatization
    B-276630




    owed. The relative cost-effectiveness of the privatized versus public
    offices varied among the four sites examined.13 Two privatized offices
    were more cost-effective, one was as cost-effective, and one was less
    cost-effective.14
•   A California evaluation of two contracts in Orange County’s GAIN
    employment and training program found that the one contract for
    orientation services resulted in good service quality and less cost than
    when performed by county employees. The other contract for a portion of
    case management services had more mixed results; the contractor did not
    perform as well as county staff on some measures but was comparable on
    others. For example, county workers placed participants in jobs at a
    higher rate and did so more cost-effectively than private workers. Yet
    client satisfaction with contractor- and county-provided services was
    comparable.15
•   A comparison of public and private service delivery in Milwaukee County,
    Wisconsin, found that the cost of foster care services was higher when
    provided by private agencies than when provided by county staff. Further,
    the private agencies did not improve the quality of services when
    measured by the time it took to place a child in a permanent home or by
    whether the child remained in that home.16
•   State governments have contracted to upgrade automated data systems in
    the child support enforcement program. Since 1980, states have spent a
    combined $2.6 billion on automated systems—with $2 billion of the total
    being federally funded. As we reported earlier, these systems appear to
    have improved caseworker productivity by helping track court actions
    relating to paternity and support orders and amounts of collections and
    distributions.17 According to HHS, almost $11 billion in child support
    payments were collected in 1995—80 percent higher than in 1990. While it
    is too early to judge the potential of fully operational automated systems,
    at least 10 states are now discovering that their new systems will cost
    more to operate once they have been completed. One state estimated that
    its new system, once operational, would cost three to five times more than

    13
     Cost-effectiveness was defined as the ratio of each office’s administrative costs to collections,
    expressed as the cost to collect $1.
    14
     Child Support Enforcement: Early Results on Comparability of Privatized and Public Offices
    (GAO/HEHS-97-4, Dec. 16, 1996).
    15
     County of Orange Social Services Agency, “Evaluation of Contracts to Privatize GAIN Services”
    (Dec. 1995).
    16
     F. Emspak, R. Zullo, and S. Rose, “Privatizing Foster Care Services in Milwaukee County: An Analysis
    and Comparison of Public and Private Delivery Systems,” prepared for The Institute for Wisconsin’s
    Future (not dated).
    17
     Child Support Enforcement: Strong Leadership Required to Maximize Benefits of Automated Systems
    (GAO/AIMD-97-72, June 30, 1997).


    Page 18                                                GAO/HEHS-98-6 Social Service Privatization
                        B-276630




                        the old system and former operating costs could be exceeded by as much
                        as $7 million annually.

                        Potential savings from privatizing social services can be offset by various
                        factors, such as the costs associated with contractor start-up and
                        government monitoring. While direct costs attributable to service delivery
                        may be reduced, state and local agencies may incur additional costs for
                        transition, contract management, and the monitoring of their privatization
                        efforts. Despite the lack of empirical evidence, most state and local
                        government officials told us they were satisfied with the quality of
                        privatized services. Some officials said that efficiencies were realized as a
                        result of contractors’ expertise and management flexibility. In many cases,
                        public agencies established collaborative relationships with private
                        providers that helped them be more responsive to beneficiaries. Still other
                        officials, however, said they saw no significant benefits resulting from
                        privatization because outcomes for children and families were the same as
                        when the government provided the service. For example, Milwaukee’s
                        privatization of foster care services had not improved the proportion of
                        children who remained in permanent homes, a specified goal of the
                        program.


                        The increase in privatization combined with the difficulties states are
HHS’ Oversight of       having in developing methods to monitor program results raise questions
States and Localities   about how HHS can ensure that broad program goals are achieved. It will
May Need to Change      be challenging for HHS to develop and implement approaches to help states
                        assess results of federally funded programs and track them over time so
in a New Environment    that state and local governments are better prepared to hold contractors
                        accountable for the services they provide. Currently, monitoring program
                        results poses a challenge throughout the government.

                        Some state and local government officials whom we interviewed believed
                        they should pay greater attention to program results, given the increased
                        use of private contractors. Several officials mentioned that HHS could help
                        the states and localities develop methods of assessing program results by
                        clarifying program goals, providing more responsive technical assistance,
                        and sharing best practices. The fact that officials in most of the states we
                        contacted said they currently do not have methods in place to assess
                        program results suggests that unless HHS provides states with this help, it
                        will have difficulty assessing the effectiveness of social service programs
                        nationally.




                        Page 19                                 GAO/HEHS-98-6 Social Service Privatization
              B-276630




              HHS’ current focus on compliance with statutes and regulations poses a
              challenge in monitoring the effectiveness of state programs and in
              identifying the effects of privatization on these programs. HHS carries out
              its oversight function largely through audits conducted by the Office of the
              Inspector General, program staff, and other HHS auditors. HHS officials told
              us that the department has focused its auditing of the states on compliance
              with federal statutes and regulations more than other areas of focus, such
              as results achieved or client satisfaction. For example, HHS may conduct a
              compliance audit to verify that state programs spent federal money in
              ways that are permitted by federal regulations.

              The Government Performance and Results Act of 1993 may provide an
              impetus for HHS to place a greater emphasis on monitoring the
              effectiveness of state programs. Under this act, federal agencies are
              required to develop a framework for reorienting program managers
              toward achieving better program results. As a federal agency, HHS must
              refocus from compliance to developing and implementing methods to
              assess social service program results. However, this transition will not be
              easy, given the challenge that government agencies face when attempting
              to orient their priorities toward achieving better program results and the
              difficulty inherent in defining goals and measuring results for social
              service programs.

              Some agencies within HHS have made progress in including the assessment
              and tracking of program results within their oversight focus. For example,
              within HHS, the Office of Child Support Enforcement has recently
              increased its emphasis on program results by establishing, in conjunction
              with the states, a strategic plan and a set of performance measures for
              assessing progress toward achieving national program goals.18 Child
              support enforcement auditors have also recently begun to assess the
              accuracy of state-reported data on program results. These initiatives may
              serve as models for HHS as it attempts to enhance accountability for results
              in social service programs supported with federal funds.


              Our work suggests that privatization of social services has not only grown
Conclusions   but is likely to continue to grow. Under the right conditions, contracting
              for social services may result in improved services and cost savings. Social
              service privatization is likely to work best at the state and local levels
              when competition is sufficient, contracts are effectively developed and

              18
               Child Support Enforcement: Reorienting Management Toward Achieving Better Program Results
              (GAO/HEHS/GGD-97-14, Oct. 25, 1996) describes how the federal Office of Child Support Enforcement
              worked with the states to establish a framework for improving program management.



              Page 20                                            GAO/HEHS-98-6 Social Service Privatization
                     B-276630




                     monitored by government officials, and program results are assessed and
                     tracked over time.

                     The observed increase in social service privatization highlights the need
                     for state and local governments to specify desired program results and
                     monitor contracts effectively. At the same time, the federal government,
                     through the Government Performance and Results Act of 1993, is focusing
                     on achieving better program results. These concurrent developments
                     should facilitate more effective privatized social services. More
                     specifically, HHS in responding to its Government Performance and Results
                     Act requirement could help states find better ways to manage contracts for
                     results. This could, in turn, help state and local governments ensure that
                     they are holding contractors accountable for the results they are expected
                     to achieve, thus optimizing their gains from privatization.


                     We provided draft copies of this report to HHS, the five states we selected
Agency Comments      for review, and other knowledgeable experts in social service
and Our Evaluation   privatization. HHS did not provide comments within the allotted 30-day
                     comment period. We received comments from California, Texas, and
                     Virginia. These states generally concurred with our findings and
                     conclusions. Specifically, officials from Texas and Virginia agreed that
                     developing clear performance measures and monitoring contractor
                     performance present special challenges requiring greater priority and
                     improvement. These states also support a stronger federal-state
                     partnership to help them address these special challenges. Comments
                     received from other acknowledged experts in social service privatization
                     also concurred with the report and cited the need to increase competition,
                     develop effective contracts, and monitor contractor performance, thereby
                     increasing the likelihood that state and local governments would achieve
                     intended results sought through social service privatization. The
                     comments we received did not require substantive or technical changes to
                     the report.


                     As agreed with your office, unless you publicly announce its contents
                     earlier, we plan no further distribution of this report until 30 days from the
                     date of this letter. At that time, we will send copies of this report to the
                     Secretary of HHS and HHS’ Assistant Secretary for Children and Families.
                     We will also make copies available to others on request.




                     Page 21                                  GAO/HEHS-98-6 Social Service Privatization
B-276630




If you or your staff have any questions about this report, please contact
Kay E. Brown, Assistant Director, or Mark E. Ward, Senior Evaluator, at
(202) 512-7215. Other major contributors to this report are Gregory Curtis,
Joel I. Grossman, Karen E. Lyons, and Sylvia L. Shanks.

Sincerely yours,




Jane L. Ross
Director, Income Security Issues




Page 22                                GAO/HEHS-98-6 Social Service Privatization
Page 23   GAO/HEHS-98-6 Social Service Privatization
Contents



Letter                                                                                              1


Appendix I                                                                                         26

Scope and
Methodology
Appendix II                                                                                        30

Characteristics
Associated With
Privatization of
Nonsocial and Social
Services
Bibliography                                                                                       32


Related GAO Products                                                                               36




                       Abbreviations

                       AFDC      Aid to Families With Dependent Children
                       CCDBG     Child Care Development Block Grant
                       GAIN      Greater Avenues for Independence
                       HHS       Department of Health and Human Services
                       JOBS      Job Opportunities and Basic Skills Training Program
                       TANF      Temporary Assistance for Needy Families


                       Page 24                              GAO/HEHS-98-6 Social Service Privatization
Page 25   GAO/HEHS-98-6 Social Service Privatization
Appendix I

Scope and Methodology


             To meet the objectives of this study, we reviewed and synthesized studies
             and published articles on social service privatization by conducting a
             literature review and synthesis of articles, studies, and other documents
             selected from economic, social science, and business bibliographic files.
             We also considered articles and studies recommended by other
             organizations. As a result of these efforts, we selected 14 articles or
             studies on social service privatization in the United States. These articles
             are listed in the bibliography.

             We chose the four programs included in our study because they constitute
             an increasingly important component of the nation’s welfare system in
             terms of both the diversity of services they provide and the magnitude of
             federal funding used to support state program administration. To select
             states for study, we reviewed GAO reports and other studies of
             privatization, concluding that we would interview state and local
             government officials in California, Massachusetts, Texas, Virginia, and
             Wisconsin regarding their respective child care, child welfare, child
             support enforcement, and family assistance programs supported by TANF.
             We selected these states to learn how state and local governments have
             implemented privatized services among the four social service programs
             we included in our review. We chose these states also because we were
             aware that they had some experience in the privatization of social services
             and we could thus examine a mix of state- and county-administered social
             service programs. To broaden our coverage of the diverse views on
             privatization, we also interviewed officials of HHS, national associations
             and advocacy groups, unions, and contractors. During our interviews, we
             obtained and reviewed agency documents.

             For our interviews, we used semistructured guides containing both closed
             and open-ended questions to obtain information on the extent of recent
             social service privatization, type of program functions being privatized,
             issues leading to the decision to privatize, issues in implementation of
             social service privatization, degree and type of monitoring and evaluation
             conducted, and federal policy implications stemming from social service
             privatization. We conducted 36 interviews in total concerning the four
             social service programs we studied.

             In conducting our interviews, we asked the interviewees to respond from
             the perspective that seemed to us most consistent with their knowledge
             base and area of primary interest. For example, we asked state program
             officials to respond from the perspective of their entire state, whereas we
             asked local officials to base their responses solely on their experiences in



             Page 26                                 GAO/HEHS-98-6 Social Service Privatization
                     Appendix I
                     Scope and Methodology




                     their own locality. Similarly, we asked officials in HHS, national
                     associations and advocacy groups, unions, and contractors to provide a
                     national perspective on key issues surrounding privatization in each of the
                     four social service programs. The interview responses that we report on
                     reflect the views of only the officials we interviewed.

                     The following information lists the federal, state, and local government,
                     union, advocacy group, national association, and contractor contacts we
                     made. The number of interviews conducted with representatives of each
                     organization appears in parentheses.


Federal Government   Department of Health and Human Services, Administration for Children
                     and Families (6)


State and Local
Governments
California           Department of Education (1)
                     Department of Social Services (3)

                     Los Angeles County

                     Department of Public Social Services, Employment Program Bureau (1);
                     District Attorney’s Office, Bureau of Family Support Operations (1)

                     San Bernardino County

                     Jobs and Employment Services Department (1)

                     San Francisco City and County

                     Department of Human Services, Employment and Training Services (1);
                     Department of Human Services, Family and Children’s Services Division
                     (1)

                     Santa Clara County

                     Social Service Agency, Family and Children Services Division (1)




                     Page 27                                GAO/HEHS-98-6 Social Service Privatization
                        Appendix I
                        Scope and Methodology




Massachusetts           Department of Social Services (1)
                        Department of Transitional Assistance (1)

Virginia                Department of Social Services (2)

Texas                   Department of Human Services (1)
                        Department of Protective and Regulatory Services (1)
                        State Attorney General’s Office (1)

Wisconsin               Department of Health and Family Services (1)
                        Department of Workforce Development (1)

                        Dodge County

                        Department of Human Services (1)

                        Saulk County

                        Department of Child Services (1)


Unions (1)              American Federation of Labor, Council of Industrial Organizations
                        American Federation of State, County, and Municipal Employees
                        American Federation of Teachers
                        Communication Workers of America
                        Service Employees International Union


Advocacy Groups         American Public Welfare Association (1)
                        Center for Law and Social Policy (1)
                        Child Welfare League of America (1)


National Associations   National Association of Counties (1)
                        National Conference of State Legislatures (1)
                        National Governors Association (1)


Contractors             Maximus, Government Operations Division (1)
                        Lockheed Martin IMS (1)




                        Page 28                                GAO/HEHS-98-6 Social Service Privatization
Appendix I
Scope and Methodology




We conducted our study between October 1996 and July 1997 in
accordance with generally accepted government auditing standards.




Page 29                              GAO/HEHS-98-6 Social Service Privatization
Appendix II

Characteristics Associated With
Privatization of Nonsocial and Social
Services

               Nonsocial services                             Social services
               Reasons for privatizing
               To reduce costs and improve services           Same as nonsocial services
               Often prompted by political leaders and top    Same as nonsocial services
               managers
               Private sector viewed as having expertise,     Same as nonsocial services
               management flexibility, and technological
               resources
               Service delivery
               Performance of repetitive tasks or             Services require special skills to meet the
               development of a tangible asset, such as       long-term needs of beneficiaries
               building maintenance or street repair
               Market competition
               Presence of providers in the market results    Limited number of qualified bidders, cost
               from demand for services                       of entry into the field is high, and continuity
                                                              of care may be desired
               Consumers of public goods and services,        Clients often do not possess market
               such as public works and park                  knowledge to judge price and quality of
               maintenance, provide feedback to help          services
               ensure that high-quality, low-cost providers
               are selected
               Consumers receive goods or services with       Clients often must participate as a
               few, if any, conditions                        condition of receiving financial benefits
               Access to services
               Public goods are generally not means-tested Consequences of unequal access to
                                                           services can be severe because these
                                                           programs provide a safety net for the
                                                           protection and well-being of beneficiaries
               Contract development, management, and monitoring
               Work requirements can be more easily           Tasks are often complex and uncertain;
               specified                                      work requirements may be more difficult to
                                                              specify clearly
               Quantitative outputs can be clearly specified Long-term program results more difficult to
               and more easily monitored than long-term      specify and monitor
               results
               Performance monitoring focuses on tangible Performance monitoring is difficult to do
               tasks or outputs
               Performance is more easily measured            Performance is difficult to measure
               because tasks tend to be more                  because most services cannot be judged
               standardized and quantifiable                  on the basis of client outcomes; treatment
                                                              approaches cannot be standardized, nor
                                                              can the appropriateness of workers’
                                                              decisions be effectively assessed

                                                                                   (Table notes on next page)




               Page 30                                        GAO/HEHS-98-6 Social Service Privatization
Appendix II
Characteristics Associated With
Privatization of Nonsocial and Social
Services




Note: This table compares the characteristics that many believe are associated with privatizing
nonsocial services and social services along several key dimensions—reasons for privatizing,
service delivery, market competition, access to services, and contract development,
management, and monitoring. The comparisons are based on the results of our literature review
and synthesis and interviews with HHS, state and local government officials, union
representatives, national associations, advocacy groups, and contractors.




Page 31                                             GAO/HEHS-98-6 Social Service Privatization
Bibliography


               Chi, K.S. “Privatization in State Government: Trends and Options.”
               Prepared for the 55th National Training Conference of the American
               Society for Public Administration, Kansas City, Missouri, July 23-27, 1994.

               Donahue, J.D. “Organizational Form and Function.” The Privatization
               Decision: Public Ends, Private Means. New York: Basic Books, 1989. Pp.
               37-56.

               Drucker, P.F. “The Sickness of Government.” The Age of Discontinuity:
               Guidelines to Changing Our Society. New York: Harper and Row, 1969. Pp.
               212-42.

               Eggers, W.D., and R. Ng. Social and Health Service Privatization: A Survey
               of County and State Governments, Policy Study 168. Los Angeles, Calif.:
               Reason Foundation, Oct. 1993. Pp. 1-18.

               Gronbjerg, K.A., T.H. Chen, and M.A. Stagner. “Child Welfare Contracting:
               Market Forces and Leverage.” Social Service Review (Dec. 1995), pp.
               583-613.

               Leaman, L.M., and others. Evaluation of Contracts to Privatize GAIN
               Services, County of Orange, Social Services Agency, December 1995.

               Matusiewicz, D.E. “Privatizing Child Support Enforcement in El Paso
               County.” Commentator, Vol. 6, No. 32 (Sept.-Oct. 1995), p. 16.

               Miranda, R. “Privatization and the Budget-Maximizing Bureaucrat.” Public
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               355-69.

               Nelson, J.I. “Social Welfare and the Market Economy.” Social Science
               Quarterly, Vol. 73, No. 4 (Dec. 1992), pp. 815-28.

               O’Looney, J. “Beyond Privatization and Service Integration: Organizational
               Models for Service Delivery.” Social Service Review (Dec. 1993), pp.
               501-34.

               Smith, S.R., and M. Lipsky. “Privatization of Human Services: A Critique.”
               Nonprofits for Hire: The Welfare State in the Age of Contracting.
               Cambridge, Mass.: Harvard University Press, 1994. Pp. 188-205.




               Page 32                                 GAO/HEHS-98-6 Social Service Privatization
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Smith, S.R., and D.A. Stone. “The Unexpected Consequences of
Privatization,” Remaking the Welfare State: Retrenchment and Social
Policy in America and Europe, Michael K. Brown (ed.). Philadelphia, Pa.:
Temple University Press, 1988. Pp. 232-52.

VanCleave, R.W. “Privatization: A Partner in the Integrated Process.”
Commentator, Vol. 6, No. 32 (Sept.-Oct. 1995), pp. 14-17.

Weld, W.F., and others. An Action Agenda to Redesign State Government.
Washington, D.C.: National Governors’ Association, 1993. pp. 42-63.




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(106615)      Page 36                                  GAO/HEHS-98-6 Social Service Privatization
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