Vol. 7, No. 12                                                                                                                   October 2003
Outsourcing the Delivery of Human Services
By Evelyn Bandoh
Privatization involves the provision of publicly funded services by nongovernment entities. Privatization can take several forms, including the cessation of services by government, the outsourcing of services by government, the divestiture of government assets and the use of public-private partnerships. Outsourcing has become a common approach to provide human services as states and localities face budget crises and struggle to ensure the same level of services with limited resources. Although privatization has been prevalent in the United States since the late 19th century, current privatization schemes are more structured and formalized. Government is increasingly turning to nonprofit groups, community-based organizations (CBOs), faith-based organizations (FBOs), charitable agencies, and private-sector companies to provide human services.
A major change to the privatization landscape occurred with the enactment of Temporary Assistance for Needy Families (TANF) in 1996. TANF funds are distributed to states through a block grant, and the program affords states and localities more discretion and flexibility in administering public cash assistance. Furthermore, TANF eliminated the requirement that public employees must determine client eligibility. This change allows government agencies to contract with nongovernment organizations. The Workforce Investment Act (WIA) of 1998 also promotes privatization. WIA’s requirement that training services be contracted out and its strong focus on measurable outcomes have increased flexibility and created more privatization opportunities. Consequently, many employment training programs have been outsourced or privatized, using performance-based contracts to meet legislative objectives.
Although the terms “privatization” and “outsourcing” are often used interchangeably, the two service structures are different. With privatization, program infrastructure is transferred entirely from the government to another service provider. The government ceases to provide those services. With outsourcing, the government competitively contracts with a vendor to provide specific services. Most outsourced functions involve transferring responsibilities for the management, operation, upgrade, and maintenance of some infrastructure to the contracted vendor, with the government agency retaining a central role in program oversight.
Outsourcing the delivery of human services is the main focus of this Issue Note. The note provides an overview of the issue and suggests resources for more information. It also discusses how states and localities can ensure fair and competitive contracting processes; ensure equal access, due process, and customer satisfaction; and ensure outsourcing opportunities for faith- and community-based organizations. More information on outsourcing can be found on The Finance Project web page on Outsourcing and Privatization at http://www.financeprojectinfo.org/Management/privatization.asp. To learn more about the involvement of faith- and community-based organizations, visit http://www.financeprojectinfo.org/FCBO/faithbase.asp and
Policy Issues
Many factors are driving government to outsource the delivery of human services. Topping the list is a desire to improve service, increase efficiency, and ensure cost-effectiveness. However, the outsourcing process requires serious consideration on political, philosophical, and economic grounds.
What criteria should be used when determining whether to contract out for services?
It is important to have criteria to distinguish what services and programs would be the best outsourcing candidates. Criteria could include costs in terms of initial outlays and possible savings as well as the derived benefits and programmatic outcomes of outsourcing. Other motivations for outsourcing include considerations of current technology needs, the skill set of employees presently employed, and the skill set needed to execute efficient programs. Enhanced technology and a more specialized skill set may be achieved more quickly through outsourcing or by creating a partnership to administer human services programs. For example, after conducting the annual Texas Performance Review in 1999, officials found deficiencies within the health and human services system. Following extensive studies, the state accepted the recommendation to increase productivity and performance by competitively bidding such processes as the purchase of Medicaid managed care services and the claims processing functions of the Texas Department of Health’s Vendor Drug Program. To learn more about Texas’ process, visit http://e-texas.org/hhs/tpr.html and
http://www.window.state.tx.us/tpr/tpr5/6hh/. Also see U.S. General Accounting Office, Privatization: Questions State and Local Decisionmakers Used When Considering Privatization Options, GAO/GGD-98-87 (Washington, D.C., April 1998), at http://www.gao.gov/special.pubs/ggd98-87.pdf.
In determining whether to outsource the delivery of services, a cost-benefit analysis is valuable. The objective of this analysis is to improve the clarity, credibility, and usefulness of the information for decisionmaking purposes. For cost estimates and comparisons to be helpful, they must be completed in a consistent and systematic manner. One issue is the ability to accurately calculate the government agency’s true costs and the savings as a result of contracting out. A second issue is the ability to assign a monetary value to the improvements arising from the contracting out of public services.
Although cost savings and performance may increase, it is important to weigh the benefits of the savings against the impact on the clients receiving the service. For example, will the outsourced service remain accessible to the client? Will the service be of the same quality? Will the service be equitable? Other factors that are important to consider are the administrative and technological support systems needed, the client base to be served, the type of program to be contracted out, and any desired objectives. The Office of Child Support Enforcement within the Administration for Children and Families has created various feasibility and cost-benefit analysis guides. To access the clearinghouse of these tools, visit http://www.acf.hhs.gov/programs/cse/stsys/tab5.htm.
What steps should state or local government take to ensure a competitive contract process?
Competition is the driving force behind outsourcing the delivery of services, so it is important to ensure fair and equitable competition during contract bidding and renewal. Although contracting out for services can increase efficiency and flexibility in service delivery, unequal access to outsourcing opportunities may thwart the desired objectives and outcomes. Contract administrators need to design and conduct a fair and competitive process while navigating any politics tied to that process.
Good contract management starts with the request for proposal (RFP), in which states and localities delineate the services desired and the objectives to be achieved. The bidders then submit a proposal that includes their strategic plan and cost estimates for meeting the stated requirements. Determining who will be allowed to vie for government outsourcing contracts can also be controlled through the RFP process. State and local governments can outline the qualities and characteristics they are looking for in a service provider. Defining these requirements in writing will help weed out service providers who may not fit the requirements. For more information on state contracting, see Keri Stock, “RFP 101,” American City & County at
http://www.americancityandcounty.com/ar/government_rfp/index.htm. For specific information on RFPs for workforce programs, see Jim Callahan and Keith Massey, The WIA Youth Program RFP Guide (Washington, D.C.: U.S. Department of Labor, Employment and Training Administration, n.d.), at http://www.doleta.gov/youth_services/pdf/rfpguide.pdf.
Another way to encourage a fair and competitive contracting process is for proposal seekers to reach out to prospective bidders and provide technical assistance to them. Bid preparation is a costly and time-consuming process. An experienced and well-performing incumbent contractor will have a competitive advantage over a neophyte bidder with less of a track record. Outreach and technical assistance can help reestablish competition in the RFP process. Especially useful strategies are hosting a meeting to explain the bid requirements or designating a contact person within the agency to answer proposal questions. Another tool to encourage a competitive bidding process is for government to provide capacity-building grants to help level the playing field between large private firms and smaller community-based organizations. Proposal seekers can also call for contracts that are smaller in size and scope to encourage smaller organizations to participate in the bidding process. For more information, see William Eggers, Talking Points: Competitive Neutrality: Ensuring a Level Playing Field in Managed Competitions (Los Angeles, Calif.: Reason Public Policy Institute, 1998), at http://www.rppi.org/TALKING5.PDF.
What are the most appropriate terms for a competitive outsourcing contract?
Mathematica Policy Research, Inc., suggests that effective contract relationships begin with a suitable match between the services required and the type of contract drafted. Typically, there are at least three types of contracts that a government agency can use.
·         Fixed-Price Contracts. Under fixed-price contracts, the amount a contractor will receive is established in advance and cannot be changed unless the contract is amended.
·         Cost-Reimbursement Contracts. Cost-reimbursement contracts set payments in line with the costs incurred by the contractor.
·         Performance-Based Contracts. Performance-based contracts provide for payment to contractors as they accomplish predetermined results. Payments can be related to services performed by the contractor, such as recruiting and enrolling a target number of clients in a training program. Performance can also be defined according to outcomes achieved by clients.
Insisting on a one-size-fits-all approach is inappropriate. Instead a government contract should incorporate characteristics of differing types of contracts to create one that fits the scope and nature of the outsourced program.
The three types of contracts have both advantages and drawbacks. For example, a fixed-price contract is predictable, but often it cannot be adapted to address unforeseen circumstances, such as an overrun in operational costs or an increase in the demand for services. Performance contracts can be helpful in achieving policy goals, but data collection and reporting can be burdensome to providers and changes to the economy or policy environment can unexpectedly increase costs or impede client progress. In addition, performance-based contracts are frequently structured such that contractors must incur large upfront costs because they do not get paid until they achieve the performance measures. According to Mathematica, this drawback resulted in the Pennsylvania Department of Public Welfare switching from performance-based contracts to cost-based contracts to operate its employment training program Community Solutions. For more information on the Pennsylvania situation, see Diane Paulsell and Ali Stieglitz, Implementing Employment Retention Services in Pennsylvania: Lessons from Community Solutions¾Final Report (Princeton, N.J.: Mathematica Policy Research Inc., July 19, 2001), at http://www.mathematica-mpr.com/PDFs/community2.pdf. For more information on contracts, see U.S. General Accounting Office, Contract Management: Guidance Needed for Using Performance-Based Contracting, GAO-02-1049 (Washington, D.C., 2002), at http://www.gao.gov/new.items/d021049.pdf. Federal Acquisition Regulations, FAC 97-01, PART 16¾TYPES OF CONTRACTS (10/1997) describes the types of contracts available for outsourcing. See http://www.arnet.gov/far/97/html/16.html.
What capacity does a state or local government need to manage outsourcing contracts?
Outsourcing requires a relationship among all parties involved and strong skills in program design, planning, and evaluation. Usually the state or locality will administer the contract and grant the contractor the right to determine the policies and procedures of service delivery. A defined plan of action and open communications are imperative, and all parties involved must agree on objectives, expectations, performance requirements, and compensation. The contract is usually designed to afford the contractor flexibility to administer the programs, while also supporting the goals and policies of the government agency. The parties need to agree on what and how services will be provided. At the same time, staff managing the contracts will need significant training. Not only will the managing staff need to be well versed in contracting, they will also need to have a good understanding of the policies and procedures governing the contract.
To manage outsourcing contracts, some state and local agencies use a partnership approach with the contractor. The usual relationship between a state or local agency and a contractor is one of compliance, monitoring, and implementation. With the partnership method, states and localities are turning more toward technical assistance and other strategies to increase the chances of contract and client success. The partnership approach to contract management is often successful when the contractor is a small community-based or faith-based organization.
Contracts also have time limits, so management of the renewal/rebidding process is important. One of the main goals of state and local agencies is to minimize the disruption of services when contracts are ready to expire and/or coming up for renewal. An agency will not want to continue a contract that does not meet performance and cost objectives. Yet, except to improve results, regularly terminating contracts may not be efficient nor cost-effective. New contracts will have large front-end costs. Moreover, clients being served by the program often benefit from program stability and continuity of service. For more information, see Jessica Yates, “Managing the Contracting Process for Results in Welfare Reform,” Issue Note (November 1998), The Finance Project, Washington, D.C., at http://www.financeprojectinfo.org/Publications/contractissue.htm.
What capacity does a state or locality need to evaluate  a contract?
A state or locality can enhance it’s capacity to evaluate an outsourced program by maintaining regulatory oversight of the program and by having the contract clearly define terms and conditions, technical specifications, and quality assurance systems. Government entities should monitor contracts to ensure all activities are being carried out according to schedule and that services are being delivered in a timely and efficient manner. Information gleaned from the monitoring can be used in the continuous improvement of the contract and of program implementation. Phasing in periodic reporting systems throughout the outsourcing period can be effective because such systems can identify the status of all activities scheduled for completion and help the government agency retain oversight of the outsourced program.
Another way that states or localities can evaluate a contract is through performance-based benchmarks. This method ties into the contract’s compensation structure and allows the contractor to be properly compensated based on reaching predetermined performance benchmarks. To include client satisfaction in performance monitoring, site visits and satisfaction surveys can be administered to ensure clients of the outsourced program are satisfied with the level and quality of services they are receiving (see the description of Wisconsin’s W-2 program in Innovative Practices).
At the same time, too much contract evaluation can produce diminishing returns. Establishing extreme regulatory oversight may have unintentional consequences and hinder the contractor’s ability to provide efficient services. For example, if benchmarks are quantitatively oriented, contractors may neglect qualitative goals such as customer service and satisfaction. Contracts relying solely on performance outcomes can cause contractors to focus on easier-to-serve clients, which can greatly skew results. It is important to weigh contract and program objectives against the need for regulatory oversight when evaluating an outsourcing contract. For more information, see Jessica Yates, “Contracting for Performance in Welfare Reform,” Resource Note (September 1997), The Finance Project, Washington, D.C., at http://www.financeprojectinfo.org/Publications/jessicacontract.htm.
What are the costs of contracting out for services?
Contracting out for the delivery of services poses administrative challenges, and it may require a large initial investment. Administrative challenges¾including measuring performance, administering contracts, overseeing the employees, ensuring a level playing field, and determining responsibility and accountability¾lead to higher explicit and implicit costs. To produce the optimal mix of services, a government agency should be aware not only of the pure accounting cost (regulatory, administrative, transaction, and efficiency), but also of the economic (implicit) cost. Once the government agency is aware of the various costs, it should include these costs as a consideration in its cost-benefit analysis.
There is also the economic problem of asymmetrical information. This problem occurs when information is not shared among parties equally. Asymmetrical information may result in adverse selection. When for various reasons the government cannot select the best-qualified vendor. The scenario can also lead to unexpected cost overruns that outweigh the perceived benefits of outsourcing service delivery. This is why it is essential to develop effective RFPs and protect the integrity of the procurement process. For additional guidance, see David H. Greenberg and Ute Appenzeller, Cost Analysis Step by Step: A How-to Guide for Planners and Providers of Welfare-to-Work and Other Employment and Training Programs (New York, N.Y.: Manpower Demonstration Research Corporation, October 1998), at  http://www.mdrc.org/Reports/CostAnalysisStepbyStep/mdrc_cost.pdf.
What steps can states and localities take to ensure equal access, due process, and customer satisfaction?
States and localities will want to monitor client satisfaction. This can be accomplished through site visits and satisfaction surveys.  It is also helpful to develop clear grievance procedures.
When services are outsourced, states and localities must also ensure client confidentiality and agency transparency. For this reason it is important for the contractors to adopt ideals, service principles, and administrative requirements that are similar to those of the state or locality. What recourse would clients have if they believed their procedural and substantive due process rights were violated? A chief accountability objective for states and localities is to ensure these customers have a forum to voice their concerns and opinions.
The contracting agency will need to determine if  the private contractor is a government employee or strictly a private contractor? What laws and procedures govern the contractor’s actions? When private organizations take on a pseudo government role of providing public services, they may be considered state actors. Determining state actor status is important, because state actors may face the same liabilities and due process and constitutional guidelines as government entities. An important caveat is that private contractors are not commonly held to administrative procedure acts and public information laws.
Specific to disabled clients being served by outsourced programs, a Welfare Law Center manual, Using the ADA to Protect the Rights of Individuals with Disabilities in TANF Programs, aims to help program practitioners use the American Disabilities Act to identify core concepts that all programs should embody, such as the right to individualized treatment, the right to equal and meaningful access to services, and the right to reasonable program modifications. To view the guide, visit http://www.welfarelaw.org/ada_manual/chapter_1.htm. To view the training outline, visit http://www.welfarelaw.org/disability_rep/adatraining2002.pdf.
States and localities may want to incorporate the ideals of the model Public Services Accountability Act of 2001 into an outsourcing contract. The Center for Policy Alternatives has proposed the legislation to serve as a policy model to improve public oversight and accountability of outsourcing contracts and help ensure that recipients receive high-quality public services.  To view this document, visit http://www.cfpa.org/issues/privatization/legislation.cfm.
What steps are needed to ensure outsourcing opportunities for faith- and community-based organizations?
FBOs and CBOs have made inroads as service providers for government agencies. Yet these organizations may be at a disadvantage compared with private companies, which often have better technology, employees with multiple skill sets, stable finances, and more resources. Many initiatives geared to CBOs, and more recently to FBOs, seek to achieve a better balance. For example, President Bush’s Office of Faith-Based and Community Initiatives, works to “expand opportunities for faith-based and other community organizations and strengthen their capacity to better meet social needs in America’s communities” (see http://www.whitehouse.gov/government/fbci/index.html). Coordinating centers for faith- and community-based initiatives can also be found in the U.S Departments of Justice, Labor, Education, Health and Human Services, and Housing and Urban Development (see Resource Contacts). For more information regarding the participation of FBOs and CBOs in service delivery, see Rachel M. Haberkern, “Implementing Charitable Choice at the State and Local Levels,” Issue Note (July 2002), The Finance Project, Washington, D.C., at http://www.financeprojectinfo.org/Publications/implementingcharitablechoiceIN.htm.
As the demand increases for more involvement in service delivery by faith- and community-based organizations, special funding programs are being created to promote their participation in the contracting process. For example, the U.S. Department of Health and Human Services’ (HHS) Compassion Capital Fund (CCF) is a $30-million fund that Congress appropriated to HHS in January 2002. CCF seeks to expand the role faith-based and community groups play in providing social services by offering financial support. For more information on CCF, visit the HHS information page at http://www.hhs.gov/news/press/2002pres/20020605.html.
To help ensure a competitive and equal contracting process, states and localities can provide technical assistance to guide FBOs and CBOs through the RFP process. In addition, they can create outsourcing contracts of varying scope. In this way, an FBO or CBO that cannot feasibly compete for the larger contracts can still compete in the bidding for the smaller contracts. The U.S. Department of Labor’s Employment and Training Administration (ETA) has made grants specific to WIA available to aid faith- and community-based organizations, most of which are new participants in the WIA system. For more information, visit the ETA web page at http://wdsc.doleta.gov/sga/sga.asp.       
Research Findings
A recent U.S. General Accounting Office (GAO) study (June 2002) found that outsourcing occurs in almost every state and exceeded $1.5 billion in federal TANF and state maintenance-of-effort (MOE) funds in 2001. This level of contracting accounts for at least 13 percent of total federal TANF and state MOE funds expended for services. Furthermore, approximately 87 percent of the total funds contracted by state governments and 73 percent of the contracts are with nonprofit providers.  There is very little empirical evidence on the success and failure rates of outsourcing. Some research has taken a broad approach by analyzing the entire outsourcing process. Recent publications by Mathematica Policy Research, Inc., in Washington, D.C., and the Welfare Law Center in New York City carefully review issues tied to the outsourcing of TANF-related services.
Mathematica’s report by Winston et al., Privatization of Welfare Services: A Review of the Literature, at http://www.mathematica-mpr.com/PDFs/privatization.pdf, discusses the recent interest in outsourcing as well as examines the current state of human services outsourcing, the decision to outsource human services programs, and the challenges faced in outsourcing human services. Highlighted challenges include guaranteeing competition, developing effective RFPs and contracts, monitoring contractor performance, addressing political opposition, involving community-based organizations, and protecting the integrity of the procurement process.
The Welfare Law Center’s “Uncharted Terrain: The Intersection of Privatization and Welfare” by Freedman et al., at http://www.welfarelaw.org/wlc01-2002.pdf, looks at trends in human services outsourcing since 1996, outsourcing’s pros, cons, and key players, and strategies for advocates concerned about policy and litigation to protect the rights of low-income clients. The researchers emphasize that advocates must consider the consequences of the shift in legal ground rules from those derived from administrative law to those based on contract law. The authors suggest that consumers or their representatives be involved at all levels of the contracting process to protect the interests of low-income individuals and to promote the delivery of high quality services.
Current research also shows that more and more human services programs differ, however, in how amenable they are to outsourcing. For example, the Workforce Investment Act of 1998 mandates contracting for training services and encourages competition in the selection of administrative entities for one-stop career centers. For-profit companies, local workforce boards, and faith- and community-based organizations are managing the operation of one-stop centers in states such as Florida, Massachusetts, Texas, and Wisconsin.
Child support enforcement is another human services program that is being outsourced to a greater extent than ever before. One contractor, Policy Studies Inc., operates in 16 states. Legislative mandates, federal performance incentives, and technology encourage the outsourcing. State and local governments are outsourcing entire programs as well as specific tasks, such as payment processing and parent locating. GAO (1998) reported that as of 1996, one or more fully outsourced child support enforcement offices existed in 15 states.
The last few years have also seen substantial changes in the scope of service delivery. Several large organizations, including Curtis, MAXIMUS, Goodwill Industries, and Catholic Charities, have gone from providing specific functions, such as systems implementation and support, to controlling entire processes, such as eligibility determination. Other players include ACS, YWCA, Lockheed-Martin, America Works, and Lutheran Social Services.
In terms of contract evaluation, a recent GAO report found that federal oversight of state and local contracting could be strengthened. The federal agency identified several contracting problems, including weak internal controls in more than 25 percent of the states nationwide, inadequate state reviews and single audits of subrecipients of grant funding, inconsistent performance reviews of contractors, and inadequate state fiscal and program monitoring of local workforce boards. Furthermore, states and localities often fail to use due diligence when delineating the objectives and outcomes of contracts. GAO recommends that the U.S. Department of Health and Human Services use state single audit reports in a more systematic manner to identify the nature and extent of contracting problems. See U.S. General Accounting Office, Federal Oversight of State and Local Contracting Can Be Strengthened, GAO-02-661 (Washington, D.C., 2002), at http://www.gao.gov/new.items/d02661.pdf.
Innovative Practices
Florida. On July 9, 2002, Florida received federal approval of a waiver allowing staff of private-for-profit workforce providers to perform some food stamp eligibility determination. Proponents hope to provide seamless service delivery.  Under the pilot program, TANF services will be totally privatized and services provided by a contracted vendor; eligibility duties for the Medicaid and Food Stamp programs will be shared by the Florida Department of Children and Families and the contracted vendor.
A waiver was necessary because of regulations that limit agencies’ ability to outsource eligibility determination. Section 1902 (a)(5) of the Social Security Act prohibits state agencies from allowing nonpublic employees to determine Medicaid eligibility. Section 1902 (a)(4) states that eligibility employees are subject to the same merit system personnel standards of public employees.  Section 11 (6)(A) and (B) of the Food Stamp Act of 1977 says that state agency personnel used in a certification process must be employed in accordance with the current standards for a merit system and that the state agency employees meeting this requirement must perform the interviews required.
Beginning in May 1997, the state took steps to launch the pilot program. The legislature approved a proposal to develop demonstration to test the feasibility of privatizing the functions of the Florida Welfare Transition Program. This process culminated in July 2002 with the approval of the waiver for the pilot program. Other important dates include November 2000, when service providers with fully trained staff started to provide client services; and April and May 2002, when Pinellas, Pasco, and Hillsborough Counties signed pilot eligibility contracts with their regional workforce boards.
The pilot program aims to test the concept of privatization, create innovative service delivery strategies in a one-stop environment, improve client services through the realignment of job responsibilities, promote work and career advancement at initial and subsequent client interviews, and develop an experimental base for future expansion of eligibility privatization. Among the groups that will be served under the pilot program in Palm Beach, Hillsborough, and Pinellas Counties are time-limited, work-eligible applicants and recipients who receive cash assistance and who may also apply for and receive food stamps and/or Medicaid. In Pasco County, the pilot program will only serve families with children that receive cash assistance and may also apply for and receive food stamps and/or Medicaid. All other families or individuals applying for food stamps or Medicaid fall outside the scope of the pilot program and will continue to have their eligibility determined by Florida merit employees. Contact: Linda G. Dilworth, director of economic self-sufficiency, 850-488-3271.
Tennessee.  In October 2002, the U.S. Department of Labor’s Center for Faith-Based and Community Initiatives announced a new partnership in Memphis, Tennessee. The pilot program seeks to foster cooperation among the local workforce investment board (WIB), elected officials, grassroots organizations, and faith- and community-based groups to improve employment outcomes for residents of Memphis. (A second pilot site is located in Milwaukee, Wisconsin.)
Created by executive order, the center’s mission is to help engage more faith- and community-based organizations in public service delivery by alleviating barriers to cooperation. The center is focusing on the local level, because 85 percent of the Labor Department’s formula grants are passed through to local workforce investment boards that provide services. Proponents of the pilot program hope to create a successful model of collaboration that can be replicated nationwide.
To select the pilot site, the Center for Faith-Based and Community Initiatives spoke to various local workforce investment boards. Memphis was chosen because of the vigor of its faith-based community, its high degree of support from local, political, and community leaders, and its high level of support and enthusiasm from the local workforce board. Still in the initial planning stages, the design of the pilot program is a collaboration involving the center, the local workforce board, local faith- and community-based groups, and other community stakeholders. The planning process may include focus groups, town hall meetings, and conferences and training sessions. Program planning and implementation is slated to take a year, with a launch date scheduled for early October 2003. Contact: Sam Diehl, policy director, Center for Faith-Based and Community Initiatives, U.S. Department of Labor, 202-693-6450.
Wisconsin.  In September 1997, Wisconsin replaced its AFDC program with the Wisconsin Works (W-2) program. Wisconsin Works is based on work participation and personal responsibility and is available to low-income parents with minor children. Eligible participants meet with financial and employment planners who help them develop self-sufficiency plans and determine their place on the W-2 employment ladder. The ladder has four levels: unsubsidized employment, trial jobs, community service jobs, and W-2 transition. For more information on the ladder and the program, visit http://www.dwd.state.wi.us/dws/w2/wisworks.htm.
To date, W-2 has gone through three contracting periods; it is now preparing for the fourth round of contracts (2004-05). In round one (September 1997-September 1999), the contractors¾namely, the counties¾were chosen based on performance during the pre-W-2 Job Opportunities and Basic Skills Training program. The county agencies that met the performance measures during the pre-W-2 program were granted right of first selection (RFS), which enabled them to circumvent the regular competitive RFP process. RFS agencies were still required to submit extensive work plans for approval. County agencies that did not meet the performance standards had to compete in the regular RFP process along with the private agencies bidding in their counties.
During round two (2000-01), private agencies that met the performance criteria could become RFS agencies. New financial and programmatic guidelines were issued that outlined additional benchmark criteria for RFS qualification. Round three spanned two years (January 2002-December 2003) and focused on continuous improvement. During this round, 67 agencies successfully completed the W-2 contract award process.
Providers of W-2 services include both for-profit and nonprofit private entities, such as MAXIMUS, Inc., The Kaiser Group, Inc., The Opportunities Industrialization Center of Greater Milwaukee, and Curtis Associates, Inc. All providers, regardless of their sector, are held to the same performance standards. An advisory group composed of representatives from private and county agencies provides input on a continuous basis.
During the first round of contracting, all private agencies had to participate in the competitive process to become a W-2 agency. In the subsequent rounds, Kaiser won RFS status and did not have to go through the competitive process. Kaiser’s W-2 plan was accepted by the state and Kaiser was again awarded the contract to provide W-2 services in Walworth County. During the current fourth round, preliminary results were just released, and Kaiser is among the 18 W-2 agencies that met the RFS criteria.
Through its involvement in the W-2 process, Kaiser has gained some valuable insight on the importance of being an active and partner with the state in administering the W-2 program. As a member of the W-2 Contract and Implementation Committee since 1997, Kaiser staff have been able to volunteer for workgroups involved in developing policy and piloting aspects of the program. Also important to Kaiser’s success is keeping abreast of TANF and TANF-related issues on the federal and state levels. Staying aware of the policy issues helps Kaiser keep its programs cutting edge.
To date, there have been no formal evaluations of the W-2 contracting process, but officials say it is an iterative process with constant problem solving, policy changes, and monitoring. During round four, W-2 officials will reevaluate performance standards and make any necessary changes. Lending continuity in service delivery, only one provider will not return for the next contracting round and a few providers have picked up additional contracts. For more information on the W-2 program and the technical aspects of the contracts, visit the W-2 resources page at http://www.dwd.state.wi.us/desw2/. For additional insight into a W-2 contractor’s experience, contact Marilyn Putz, operations manager, Kaiser Group, at mputz@kaisergrp.com.
For More Information…
Resource Contacts
·         Policy Studies Incorporated at http://www.policy-studies.com/
·         Reason Foundation, Reason Public Policy Institute, Los Angeles, California, Geoffrey Segal, director of privatization and government policy reform, 310-391-22245.
·         The University of Baltimore School of Law, Baltimore, Maryland, Michele Gilman, assistant professor of law, 410-837-5656 or mgilman@UBmail.ubalt.edu.
·         The Urban Institute, Washington D.C., Nancy Pindus, senior research associate, 202-261-5523 or npindus@ui.urban.org.
·         U.S. Department of Education, Center for Faith-Based and Community Initiatives, Elizabeth Farrell, 202-401-0003; or http://www.hhs.gov/faith.
·         U.S. Department of Health and Human Services, Center for Faith-Based and Community Initiatives, Cathy Deeds, 202-401-3161, or Cathy.Deeds@hhs.gov; or http://www.hhs.gov/faith.
·         U.S. Department of Housing and Urban Development, Center for Faith-Based and Community Initiatives, Cheryl Appline, 202-708-2404; or http://www.hud.gov/offices/fbci/index.cfm.
·         U.S. Department of Justice, Center for Faith-Based and Community Initiatives, Scott Bloch, 202-514-6702 or http://www.ojp.usdoj.gov/fbci/.
·         U.S Department of Labor, Center for Faith-Based and Community Initiatives, Washington, D.C., Sam Diehl, policy director, 202-693-6450; or http://www.dol.gov/cfbci.
·         Welfare Law Center, New York, New York, Gina Mannix, program director, 212-633-6967 or mannix@welfarelaw.org, or www.welfarelaw.org
·         White House Office of Faith-Based and Community Initiatives, 202-456-7019; or
Bierce & Kenerson, P.C. Differences Between Outsourcing and Privatization of Information Services in America. New York, N.Y.: Bierce & Kenerson, P.C., n.d. Available at http://www.biercekenerson.com/Articles/Privatization.htm or call 212-840-0080.
Callahan, Jim, and Keith Massey. The WIA Youth Program RFP Guide. Washington, D.C.: U.S. Department of Labor, Employment and Training Administration, n.d. Available at http://www.doleta.gov/youth_services/pdf/rfpguide.pdf.
Center for Policy Alternatives. Model Legislation¾Summary: The Public Services Accountability Act of 2001. Washington, D.C.: Center for Policy Alternatives, 2003. Available at http://www.cfpa.org/issues/privatization/legislation.cfm.
Dannin, Ellen J. “White Paper on Privatization.” Washington, D.C.: Economic Policy Institute, January 2001. Available at
Dodenhoff, David. Privatization Works: A Study of the Private Administration of the Wisconsin Works Welfare Reform Program. Indianapolis, Ind.: Hudson Institute, 2002. Available at http://www.hudson.org/index.cfm?fuseaction=contact_information or call 317-545-1000.
Eggers, William. Competitive Neutrality: Ensuring a Level Playing Field in Managed Competitions. Los Angeles, Calif.: Reason Public Policy Institute, 1998. Available at
Freedman, Henry, Mary R. Mannix, Marc Cohan, and Rebecca Scharf. “Uncharted Terrain: The Intersection of Privatization and Welfare.” Clearinghouse Review 35, No. 557 (January-February 2002). Available at http://www.welfarelaw.org/wlc01-2002.pdf or call 212-633-6967.
Greenberg, David H., and Ute Appenzeller. Cost Analysis Step by Step: A How-to Guide for Planners and Providers of Welfare-to-Work and Other Employment and Training Programs. New York, N.Y.: Manpower Demonstration Research Corporation, October 1998.
Haberkern, Rachel M. “Implementing Charitable Choice at the State and Local Levels.” Issue Note (July 2002). The Finance Project, Washington, D.C. Available at
Johnston, Jocelyn M., and Barbara S. Romzek. Implementing State Contracts for Social Services: An Assessment of the Kansas Experience. Arlington, Va.: IBM/PriceWaterhouseCoopers Endowment for the Business of Government, May 2000. Available at http://www.endowment.pwcglobal.com/pdfs/Johnston_Report.pdf.     
McConnell, Sheena. Privatization in Practice:  Case Studies of Contracting for TANF Case Management, Washington, D.C.: Mathematica Policy Research, Inc., March 2003.
National Center on Poverty Law, Clearinghouse Review, January-February 2002, available at http://www.povertylaw.org/legalresearch/articles/showissue.cfm?id=15-Jan-02.
Paulsell, Diane, and Ali Stieglitz. Implementing Employment Retention Services in Pennsylvania: Lessons from Community Solutions¾Final Report. Princeton, N.J.: Mathematica Policy Research, Inc., July 19, 2001.
Stock, Keri. “RFP 101.” American City & County, August 1, 2001. Available at
Sweeny, Eileen P. Barbara L. Bezdeck, Sharon Parrott, Carol W. Medaris, and Cary LaCheen. “Language Matters: Designing State and County Contracts for Services Under Temporary Assistance for Needy Families.Clearinghouse Review 35, No. 508 (January-February 2002). Available at http://www.welfarelaw.org/privatization/LanguageMatters.pdf.
U.S. General Accounting Office. Contract Management: Guidance Needed for Using Performance-Based Contracting, GAO-02-1049. Washington, D.C., 2002. Available at
U.S. General Accounting Office. Privatization: Questions State and Local Decisionmakers Used When Considering Privatization Options, GAO/GGD-98-87. Washington, D.C., April 1998. Available at http://www.gao.gov/special.pubs/ggd98-87.pdf or call 202-512-6000.
U.S. General Accounting Office. Welfare Reform: Federal Oversight of State and Local Contracting Can Be Strengthened, GAO-02-661 Washington, D.C., June 2002. Available at http://www.gao.gov/new.items/d02661.pdf.
Utt, Ronald D. “Improving Government Performance Through Competitive Contracting.” Backgrounder No. 1452 (June 25, 2001). The Heritage Foundation, Washington, D.C. Available at http://www.heritage.org/library/backgrounder/bg1452es.html.
Warner, Mildred, and Amir Hefetz. “Privatization and the Local Market Structuring Role of Local Government.” Working Paper No. 197, Cornell University Department of City and Regional Planning, Ithaca, N.Y., December 2000. Available at
Winston, Pamela. Andrew Burwick, Sheena McConnell, and Richard Roper. Privatization of Welfare Services: A Review of the Literature. Washington, D.C.: Mathematica Policy Research, Inc., May 2002. Available at http://www.mathematica-mpr.com/PDFs/privatization.pdf or call 202-484-9220.
The Welfare Information Network is supported by grants form the Annie E. Casey Foundation, the Charles Stewart Mott Foundation, the David and Lucile Packard Foundation, the William and Flora Hewlett Foundation and the Ford Foundation