Previous Manager’s Choice dilemmas

As director of operations for the West Dakota Department of Social Services, you have long advocated a shift to performance contracts. Finally, you won. Now what?

In West Dakota, the Department of Social Services is responsible for a variety of programs, such as job training; maternal and child health checkups; alcohol and drug-abuse counseling; mental retardation, developmental disability and youth services; and child-support enforcement. The state itself does not actually deliver many social services, however; rather, it contracts for them. Indeed, Social Services has hundreds of contracts with nonprofit and for-profit organizations.

Unfortunately, in 1979, the Division of Youth Services was rocked by a contracting scandal: Some contractors spent money for questionable purposes, including elegant meals at Maison d’Akota, and the division didn’t catch it. The abuses accumulated until a contractor blew the whistle, newspapers published embarrassing stories, the legislature held raucous hearings, and some careers were arrested or ruined.

Ever since, Social Services has employed only traditional, regulatory contracts. These contracts all have numerous line items that narrowly constrain the contractors’ budgetary flexibility. As a result, the department has been scandal-free for more than two decades.

There are, however, some obvious costs. The provisions of the department’s regulatory contracts are completely disconnected from the results it wants its contractors to produce. Regulatory contracts reward contractors for following the multiple, narrow, complex rules for deploying their financial inputs. Regulatory contracts say nothing about producing substantive outputs or outcomes.

And West Dakota’s contractors have played the game according to these rules. They’ve avoided scandal. But they have also avoided experimentation and innovation. As a result, their performance has suffered.

You aren’t the only one to recognize this. The contractors recognize it. The state’s auditors recognize it. The social-service advocates recognize it. Many legislators recognize it. The more observant journalists recognize it. But for years, nobody has been willing to say it out loud. Everyone remembers “The Scandal.” No one wants to be accused of failing to have learned the lessons of ’79. And thus Social Services has continued to use very detailed, very specific regulatory contracts.

Several years ago, you began agitating for a change. You knew it was dangerous to even broach the issue publicly. So you did it the old-fashioned way, one person at a time. And you were surprised. A lot of people agreed with you — in private. They just weren’t willing to go public.

Then, you discerned an opportunity. With the governor finishing his second term, you urged him to include in his final budget message a provision that would permit the department to experiment with some performance contracts. The legislature immediately labeled this “The Governor’s Contracting Experiment,” and then agreed to include it in the department’s appropriations legislation without further comment or a specific vote.

Thus, the appropriations bill authorizes the department to enter into a dozen three-year performance contracts with different providers of social services. No contract can exceed $500,000, and the total value of these 12 contracts is not to exceed $5 million. As Bretta (”The Saber”) Hagen, chair of the Senate appropriations committee, told the press: “We want to be sure that Social Services doesn’t squander too much money on this very iffy idea. But we don’t much care where they try it.”

Privately, however, Senator Hagen wanted a clear understanding of which social services would be included in the performance-contracting experiment. And she wanted to be sure that none of these contracts went for juvenile services. So the two of you privately agreed that all 12 contracts would be for job training. But publicly and officially, Hagen remains pessimistic.

So does almost everyone else. None of these people is 100 percent convinced that the theory of performance contracting will prove itself in practice. And they are worried about making a big shift to an unknown.

Still, people are quite willing to let YOU experiment. They just don’t want to publicly acknowledge that West Dakota’s contracting regulations could be — let alone should be — designed to do anything but suppress scandal. If your experiment fails, no one wants to look naive. As Pete Martez, the state’s chief procurement officer, told the press: “We’re giving Social Services the freedom to demonstrate that performance contracting can work, or prove that it’s just another one of those nutty, impractical ‘reforms.’ ”

You’ve won. Now your challenge is to prove that performance contracting can really work.

For Bob Behn's approach to this month's public management dilemma — or to post your own ideas — click here.