Privatization in Practice: Case Studies of Contracting for TANF Case Management. Establishing the Scope and Size of TANF Contracts

03/01/2003

Public agencies contracting out TANF services also need to determine the scope of their contracts, in terms of services and geographic reach, and whether to award a few large contracts or more numerous, smaller contracts. Table II.3 shows the number and average size of the contracts in each study site. Some study sites chose to issue one or two large contracts to cover all services, while others parceled out services to many contractors. Lower Rio Grande Valley, for example, issued one $31 million contract to cover the operation of the one-stop centers, including the provision of TANF case management. Palm Beach County issued two contracts, one of which was worth over $6 million. At the other end of the spectrum, Hennepin County has 26 contracts, none of which is much larger than $2 million.

The sites also varied in how they defined the scope of each contract (Table II.3). San Diego County and Wisconsin issued contracts for service provision by geographic region. Delaware did the same, but within each region, issued separate contracts for employment placement and retention support. Each contract in Hennepin County specified a number of client slots, allowing clients to choose among providers. Separate contracts were also awarded for traditional (Tier I) TANF recipients and long-term (Tier II) recipients. Palm Beach County issued two contracts for TANF case management  both held by the same organization. One contract covered the operation of the one-stop centers and direct services, including TANF case management; the other dealt with TANF eligibility determination. The latter was issued by the Department of Children and Families to the Workforce Investment Board, which in turn subcontracted to the private agency. Lower Rio Grande Valley issued only one contract for the entire region.

Table II.3.
Number, Value, And Scope Of Contracts By Site
Site Number of Contracts Value of Individual Contracts Scope of Contracts Defined by:
Delaware 8 $0.2m to $1.6m(a) Region and service (placement or retention support)
Hennepin County 26 $0.2m to $1.9m(a) Number of client slots and service (general or long-term recipients)
Lower Rio Grande Valley 1 $30.7m (b) Covers entire region
Palm Beach County 2 $0.7m to $6.4m(c) Service (one-stop operation or eligibility determination)
San Diego County 3 $2.1m to $7.6m(a) Region
Wisconsin 67 $0.25m to $61.5m(d) Region
a Contracts cover only employment-related TANF case management.
b Contract covers the management and operation of one-stop centers, including TANF case management.
c One contract covers eligibility determination; the other covers the operation of one-stop centers, including TANF case management.
d Contracts cover all TANF services, administration, and benefits.

Issuing a few, large contracts has several advantages. First, it limits the cost of contract administration and monitoring. Second, there may be economies of scale in providing services  the costs of the infrastructure and management can be spread across a larger number of clients. Third, it allows for greater coordination and service integration  if there are many contracts divided by function, rather than region, clients may "fall between the cracks." In Delaware, for example, considerable effort was made to ensure that once clients left the placement contractor, they met with a retention support case manager in a different agency. However, one Delaware contractor argued that it would be more efficient for the same contractor to provide both placement and retention support to the clients.

Issuing more numerous, smaller contracts has advantages of its own. First, it allows contractors to specialize by service or by population. In Hennepin County, the providers specialized in different racial/ethnic populations or in different neighborhoods of the city. One agency, for example, specialized in serving the Hmong community. Wisconsin divided Milwaukee into six different regions, each with its own contract, so that contractors could specialize in serving different neighborhoods of the city. In Delaware, the contracts were divided by function because both the public agency and contractors felt placement case managers required different skills than retention support case managers, and several contractors mentioned that they would not want to undertake providing both services.

The second advantage of having more numerous, smaller contracts is the reduced risk of contractor nonperformance. If a contractor goes out of business or performs below standard, the administering agency can more quickly replace the nonperforming contractor with another that is operating nearby.

The third advantage of having more numerous, smaller contracts is increased competition, that may in turn lead to higher quality or cheaper services. The greater the number of contracts, the more incumbent contractors there will be. This increases competition because the fiercest competition at contract renewal usually comes from other incumbent contractors. In addition, a wider range  and, as a result, a greater number  of organizations can compete for smaller contracts.

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