Privatization in Practice: Case Studies of Contracting for TANF Case Management. Variation in the Degree of Competition

03/01/2003

The degree of competition depends on whether bidders perceive that there are other organizations that can offer services of similar or higher quality at a similar or lower cost. Procurements are more competitive when bidders perceive a high probability that they may lose the bid and less competitive when they perceive that other organizations are unlikely to be interested in securing a contract or that other bidders will be unlikely to offer services of higher quality or lower cost.

As it depends on bidders perceptions, there is no single, quantifiable measure of competition. The number of bids for each contract, the frequency that service providers are changed, and assessments of competition from contractors and the procuring agency all indicate the degree of competition.

All indicators suggest that there is a wide variation in the degree of competition for TANF case management contracts. Competition seems considerable in Delaware, San Diego County, and Lower Rio Grande Valley. It is more limited, however, in Hennepin County (at least for Tier I contracts), Palm Beach County, and Wisconsin.

The number of bids for each contract varied by site. At the most recent procurement, there were five bids per contract in Lower Rio Grande Valley, but only a single bidder for the contract in Palm Beach County (Table III.1). In Hennepin County, the process may be more competitive than suggested by the low ratio of bids to awarded contracts, because contractors compete for the number of slots as well as the contract. The number of slots for general TANF recipients ("Tier I slots") awarded to contractors varies from 100 to over 900. The number of bids per contract in Wisconsin overstates the degree of competition for contracts because contractors who meet certain performance standards earn the "right of first selection" and do not need to compete with other contractors for the new contract. The right of first selection is discussed in more detail below.

Table III.1.
Number of Bids Per Contract
Site Number of Bids Per Contract(a)
Delaware 8 to 10 bids per 3 or 4 contracts
Hennepin County 23 bids for 20 Tier I contracts(b)
18 bids for 6 Tier II contracts(b)
Lower Rio Grande Valley 5 bids for 1 contract
Palm Beach County 1 bid for 1 contract
San Diego County 2 to 5 bids per contract
Wisconsin 12 bids for 5 contracts(c)
a Refers to the most recent procurement.
b Contractors also compete for the number of slots.
c This is for contracts that are competitively bid. In Wisconsin, contractors who meet certain performance standards win the right of first selection and do not compete against other contractors.

Some opponents of privatization have suggested that contracting will become less competitive over time. However, there was no discernable trend in the number of bids per contract in the study sites. In Hennepin County, the number of bids for each Tier I contract fell from 1.8 to 1.2. Similarly, in Palm Beach County, the number of bids fell from three in 1997 to one in 2002. In Lower Rio Grande Valley, however, the number of bids per contract increased from three in 1999, to four in January 2001, to five in December 2001. The number of bids per contract remained similar in Wisconsin for the contracts that were competed. (San Diego County has conducted only one procurement.)

Another indication of the extent of competition is the frequency with which contractors lose a contract to another contractor. Delaware and the Lower Rio Grande Valley, both with a high ratio of bids to awards, were the sites in which there was the highest turnover of contracts:

  • Delaware. Of the three incumbent contractors who held placement contracts between 1997 and 1999, two lost their contracts in the 1999 procurement. One lost its contract to another incumbent contractor and the other lost to a new contractor. (In the 2001 procurement, no change occurred in the placement contractors.) Even more turnover occurred in the contractors who held retention contracts. Of the six contractors who held retention contracts between 1997 and 1999, three lost their contracts to other incumbent contractors in the 1999 procurement. In the 2001 procurement, one of the three remaining incumbent contractors was replaced.
  • Lower Rio Grande Valley. All three procurements in Lower Rio Grande Valley have resulted in a change in contractor. Lockheed Martin IMS won the first contract in 1999. Due to issues with contractor performance and a need to expand the scope of the contract to cover additional functions, the workforce board decided to put the contract up for competition again in January 2001. At that procurement, Lockheed Martin lost the contract to Workforce Network and subsequently sued the board. As part of the settlement, the contract was competitively re-issued in December 2001 and awarded to a joint venture of ACS (which by then had acquired Lockheed Martin IMS) and the Texas Migrant Council.

In contrast, there were fewer contract turnovers in Hennepin County, Palm Beach County, and Wisconsin:

  • Hennepin County. Of the 19 contractors who provided services between 1997 and 2000, only one lost its contract during the 2000 procurement. However, the number of slots the contractor can fill may be decreased in a new procurement or at renewal. Of the 21 organizations currently providing services, three were notified that their allocation of slots would be reduced if their performance did not improve.
  • Palm Beach County. The one contractor awarded the first procurement also won the second, most recent procurement.
  • Wisconsin. There has been very little turnover in contractors in Milwaukee. The contractors selected to deliver services at the first procurement were all awarded "right of first selection" and did not need to compete for the 2000-2001 contracts. Before the third procurement, a contractor that had been caught with disallowable costs in a state audit agreed not to bid; all other organizations maintained their contracts. The turnover has been greater in other parts of the state, mainly because several counties voluntarily terminated their contracts.

Although assessments of competition varied across sites, the public agency and the contractors within a site generally agreed about the degree of competition. In Delaware, Lower Rio Grande Valley, and San Diego County, both the contractors and the public agency administering the contracts viewed the contracts as competitive. On the other hand, in Hennepin County, most contractors interviewed did not perceive a significant risk of losing their contracts. Similarly, going into the most recent procurement, contractor staff in Palm Beach County had not expected strong competition, but they were surprised to be the lone bidder.

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