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


Privatization of welfare services has a long history in the United States. Recently, however, the privatization of welfare services has increased significantly and expanded into new services  a trend that is likely to continue. The 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) provided much of the impetus for this increase. It did so by shifting the emphasis of the welfare system from providing cash assistance to placing welfare recipients in jobs and by giving states more autonomy to formulate their own programs and policies under the new Temporary Assistance for Needy Families (TANF) program. Many states and localities responded to welfare reform by changing not only the services they offer, but also the types of organizations that deliver them. Services once primarily provided by government agencies, including case management, are now increasingly contracted out. The U.S. General Accounting Office (GAO) estimates that in 2001 state and local governments spent more than $1.5 billion  or about 13 percent of all federal and state maintenance-of-effort expenditures for TANF administration and services  on contracts with nongovernmental agencies (GAO 2002).

State and local government agencies that choose to privatize welfare services face significant challenges, however. The agency must ensure that contractors are selected in a fair, effective, and competitive way; design contracts that motivate providers to perform and ensure appropriate services are provided; coordinate the public and private provision of services; and monitor the work of the contractors. Many states and localities that are privatizing welfare services have little experience with large-scale contracting, and information on the associated challenges and effective ways to meet them is scant.

Recognizing the need for more information about privatization of TANF services, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) of the U.S. Department of Health and Human Services (DHHS) funded Mathematica Policy Research to conduct a study of privatization with a special emphasis on TANF case management. This study is designed to inform policymakers, researchers, and states and localities that are either currently contracting out or considering doing so. Built around in-depth case studies of six states or localities that have privatized TANF case management, the study has two main goals:

  1. To describe the privatization of TANF case management in the study sites. The study focuses on the key decisions and activities undertaken in privatizing TANF case management. It describes the rationale for privatization and the selection of services to privatize, the contractors involved, the procurement process, and the types of contracts issued. The challenges of service provision under privatization and the methods used to monitor contractors are also examined.
  2. To document the lessons learned in the study sites from their experiences privatizing TANF case management. States and localities have gained expertise on privatization both by meeting its challenges and by learning from the mistakes inevitable in all new ventures. This study aims to highlight innovative practices and identify common pitfalls in privatization.

The study focuses on TANF case management and related case processing for three reasons. First, these services  which include eligibility determination, assessments, development of self-sufficiency or employment plans, referrals, and sanctioning  had traditionally been provided mainly by government agencies but are now increasingly being provided by private agencies. Indeed, prior to PRWORA, only government employees were allowed to determine eligibility for cash assistance. Now, however, privatizing some aspects of TANF case management is quite common  40 states have done so  and some states and localities have privatized all TANF case management functions (GAO 2002). Second, case management is at the heart of the TANF program; the programs success in placing welfare recipients in jobs is largely dependent on case managers ability to identify barriers to employment and ensure that clients receive appropriate services. Third, by the nature of their jobs, case managers have considerable discretion in the provision of services. Some observers have raised concerns about assigning this power to private agencies, particularly for-profit organizations.

The findings from the case studies will be valuable to any state or locality that has already decided to privatize welfare services. However, the study does not address the broader question of whether the state or locality should privatize. While information on stakeholders perceptions about the effects of privatization was collected as part of the case studies, it was beyond the scope of the study to conduct a rigorous evaluation of the impact of privatization.

This report presents findings from the case studies. The remainder of Chapter I defines privatization, provides study background, and describes the study design. Chapter II describes the TANF case management services privatized in each site, how they were privatized, to whom the contracts were awarded, and the rationale for those decisions. The methods used to select contractors and ensure that the process was fair, effective, and competitive are outlined in Chapter III. The issues involved in designing the contracts between public and private agencies are presented in Chapter IV. The role of the public agency in monitoring the work of the private agencies is discussed in Chapter V. Chapter VI examines some challenges to service delivery under privatization, including coordinating public and private service provision, facilitating the transition to privatization, and managing contract turnover. Chapter VII offers a summary of the major lessons learned from the study.

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