Privatization in Practice:
Case Studies of
Contracting for TANF Case Management

Final Report

By:
Sheena McConnell, Andrew Burwick, Irma Perez-Johnson, and Pamela Winston

March 2003

Submitted to:
U.S. Department of Health and Human Services
Office of the Assistant Secretary for Planning and Evaluation

Project Officer:
Ann McCormick

Submitted by:
Mathematica Policy Research, Inc.

Project Director:
Sheena McConnell

This report is available on the Internet at:
http://aspe.hhs.gov/hsp/privatization-rpt03/

How to Obtain a Printed Copy

Contents

Acknowledgements

Executive Summary

Chapters

1. Introduction
   1. Defining Privatization
   2. Background to the Study
   3. Study Design
      1. Selecting Sites
      2. Conducting the Case Studies
2. Privatizing TANF Case Management:  Why, What, and to Whom?
   1. The Rationale for Privatization
      1. Belief that Privatization Improves Service Delivery
      2. Pragmatic and Political Factors
   2. Deciding Which Functions to Privatize
      1. Types of Case Management and Processing Functions Privatized
      2. Factors Affecting Which Case Management and Processing Functions are Privatized
   3. Establishing the Scope and Size of TANF Contracts
   4. The Contractors
      1. National For-Profits
      2. Affiliates of National Nonprofits
      3. Local and Regional Nonprofits
      4. Collaboration Among Contractors
      5. Strengths of Different Types of Contractors
3. Procurement:  Ensuring a Fair, Effective, And Competitive Process
   1. Promoting Competition
      1. Variation in the Degree of Competition
      2. Decisions that Affect the Degree of Competition
   2. Ensuring a Fair and Effective Procurement Process
      1. Balancing Flexibility and Prescription in Requests for Proposals
      2. Providing Information and Assistance to Potential Bidders
      3. Evaluating Proposals and Selecting Contractors Fairly
4. Designing Contracts That Work
   1. Performance Measures
      1. Creating Incentives to Meet Program Goals
      2. Avoiding Unintended Incentives
      3. Feasibility of Measurement
   2. Payment Structure
      1. Contract Types
      2. Implications of the Contract’s Payment Structure
   3. Contract Duration
5. Upholding Accountability Through Monitoring
   1. Types and Methods of Monitoring
      1. Service Quality and Effectiveness
      2. Policy Compliance
      3. Financial Integrity
   2. Who Performs Monitoring?
      1. Division of Responsibilities Between Agency and Contractor
      2. Professional Auditors’ Role
      3. Client Advocates’ Role
   3. Using Monitoring to Improve Services
      1. Reporting Results
      2. Addressing Deficiencies
   4. Balancing the Benefit and Burden of Monitoring
6. Facing the Challenges of Service Provision Under Privatization
   1. Coordinating Public-private Provision of Services
      1. Coordination Challenges Created by Privatization
      2. Strategies to Facilitate Coordination
   2. Managing the Transition to Privatized Services
   3. Managing Contractor Turnover
7. Key Lessons Learned
   1. Agencies Must Prepare to Address the Challenges of Privatization
   2. The Procurement Process Must Be Fair and Transparent
   3. Contract Design Affects the Level of Competition
   4. Performance Measures Should Be Targeted, Yet Comprehensive Enough to Avoid Unintended Consequences
   5. It Is Possible to Design Contracts that Include Performance Incentives but Limit Risk to Contractors
   6. Public Agencies Must Dedicate Resources to Monitor the Work of Contractors Effectively
   7. Public and Private Agencies Must Find Effective Ways to Coordinate Services

References

Appendices

1. Site Descriptions
2. Service Providers Visited for Case Studies

Tables

• I.1 Site Experiences with Privatization of TANF Case Management
• I.2 Variation Across Sites in TANF Administration, Contractor Type, and Contract Type
• I.3 Public Agencies Involved in the Administration of TANF, Food Stamps, and Medicaid
• II.1 TANF Case Management and Processing Functions Performed by Contractors
• II.2 Typical Caseloads Of TANF Case workers At Public And Private Agencies
• II.3 Number, Value, and Scope of Contracts By Site
• II.4 Number and Characteristics of Contractors in the Study Sites
• III.1 Number of Bids Per Contract
• III.2 Composition of Selection Committees
• IV.1 Performance Measures in Contracts in Study Sites
• IV.2 Payment Structure in Contracts in Study Sites
• IV.3 Implications of Different Payment Structures
• IV.4 Contract Duration in Study Sites
• V.1 Monitoring Types, Purposes, and Methods
• VI.1 Colocation of Staff From Public and Private Agencies

List of Figures

I.1. Case Study Sites

Acknowledgements

We would like to thank the many administrators and staff of the public and private agencies who met and talked with us during our site visits to Delaware, Hennepin County, Lower Rio Grande Valley, Palm Beach County, San Diego County, and Wisconsin. They were exceedingly generous with their time and in sharing their perspectives on the successes and challenges of privatization. Several sites had been involved with other studies of privatization and welfare reform but were nonetheless willing to take the time and make the effort to assist us with this study.

We are particularly grateful to the study liaisons in each site who organized our visits, graciously hosted us, and reviewed and commented on the draft of this report. They include: Tom Smith in Delaware, Philip AuClaire in Hennepin County, Cassandra Moreno in the Lower Rio Grande Valley, Ken Montgomery in Palm Beach County, Jolie Ramage in San Diego County, and Mary Rowin in Wisconsin. In addition, we spoke with representatives of advocacy groups and public employee unions in each site who were also very helpful in offering their thoughts and concerns about the privatization of TANF case management.

Ann McCormick and Matt Lyon, our project officers from the Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services, provided insightful and collegial guidance, review, and support throughout the project. They were a pleasure to work with.

Richard Roper of The Roper Group offered essential assistance. He coordinated and led the site visits to Hennepin and Palm Beach Counties. He also provided valuable advice and suggestions on the study design and interpretation of the findings and made helpful comments on an earlier draft of this report.

At Mathematica Policy Research, Donna Pavetti, Alan Hershey, and Heather Hill reviewed drafts of project reports and presentations and contributed thoughtful feedback. Jackie Wong provided valuable assistance with many tasks associated with this project. The report was edited by Caitlin Johnson and expertly produced by Alfreda Holmes and Jill Miller.

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Last updated:  06/11/03