Privatization in Practice: Case Studies of Contracting for TANF Case Management. Strengths of Different Types of Contractors

03/01/2003

The experiences of study sites offer no conclusive evidence that one type of contractor consistently provides better services than another. Contractors that rank highly on performance standards established in the six sites come from each group  for-profits, affiliates of national nonprofits, and local nonprofits. The same is true of organizations with lackluster records. Contractors performance may reflect local context as much as organizational effectiveness, however, as differences in economic conditions or the characteristics of clients can influence program results.

Still, researchers are making efforts to weigh the effectiveness of different types of service providers by comparing outcomes for TANF recipients in locations with a mix of providers:

  • Florida. Crew and Lamothe (2002) used data on employment outcomes and satisfaction among clients to compare government, for-profit, and nonprofit providers of welfare services in Florida. Taking into account some observable variation in regional economies and client characteristics, they conclude that differences among outcomes for different types of providers "are generally small and often non-existent." They also find that "in no case are private organizations substantively superior" to public entities in providing services to welfare clients. Providers do, however, differ on some measures. Among other things, the study indicates that nonprofits and public agencies do a better job than for-profits in finding unsubsidized employment for welfare clients, but for-profits are more successful in helping clients leave welfare due to earnings.
  • Maricopa County, Arizona. Kornfield (2002) compared the performance of a private for-profit agency and a public agency after the TANF program in eastern Maricopa County was reformed and privatized as the Arizona Works program. A public agency continued to run the TANF program, known as EMPOWER, in the rest of the county. With the caveat that the Arizona Works program differs from EMPOWER in some of its rules and the existence of performance measures, the study concluded that the private and public agencies were about equally successful at increasing clients earnings and employment.
  • San Diego County. San Diego Countys allocation of different regions to nonprofit, for-profit, and public providers is another attempt to draw conclusions about relative effectiveness. The RAND Corporation is conducting an evaluation for this purpose.

Certainly, for-profits, national affiliates, and local nonprofits vary in the resources they have available. Larger organizations, particularly for-profits, tend to have more financial resources that enable them to take on projects of substantial size. Their financial advantage also enables them to take greater risks, such as entering into a purely pay-for-performance contract. In some places, well-financed organizations have employed their resources to lobby for policy changes that increase their chances of securing a contract. In the Lower Rio Grande Valley, a for-profit went so far as to finance a lawsuit against the workforce board after losing a contract award.

In addition to this disparity in resources, agency administrators and advocates in the study sites emphasized that nonprofits mission orientation affects how they provide services and respond to contract incentives. For-profits appear to hold closely to the conditions of the contract and are driven by performance outcomes. At least one for-profit, MAXIMUS, rewards case managers financially for achieving performance targets. On the other hand, some observers noted that nonprofit agencies are more likely to meet the needs of their clients regardless of their contract obligations.

Stakeholders also often perceive a difference in management style and program approach between for-profits and nonprofits. Case management provided by nonprofits is generally thought to be more holistic than that of for-profits  addressing the needs of an entire family, for example, rather than the adult head of household alone.

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