The Pay-for-Performance Approach to Reducing Recidivism
The early success of a Pennsylvania program for parolees shows the potential for one form of privatization.
There's no doubt that privatization can save money and provide other benefits. But it can just as easily turn into a boondoggle. If done right, pay-for-performance contracts can help governments end up in the former category.
Since 2013, the Pennsylvania Department of Corrections has been paying private operators of community corrections centers -- halfway houses that help parolees transition back into society -- based on the centers' performance at reducing recidivism. To achieve their goals, contractors provide services such as cognitive behavioral therapy, substance abuse counseling and educational/vocational programming.
Before the pay-for-performance contracts were adopted, 60 percent of the parolees in halfway houses were being re-arrested. After two years of decreases, that number is down by about half. During the last fiscal year, the decline in recidivism prevented an estimated 122 Pennsylvania residents from becoming crime victims, according to state Corrections Secretary John Wetzel.
The private halfway houses that Pennsylvania contracts with can receive an incentive bonus depending on their success at reducing recidivism, while those that see recidivism increase for two consecutive years are subject to having their contracts terminated. For the fiscal year that recently ended, six of the 42 centers received an incentive bonus equal to 1 percent of the client per-diem rate, and one was placed on warning status for exceeding the baseline recidivism level.
Pennsylvania's initial success in dealing with recidivism is solid evidence that performance contracts are more likely to succeed than traditional privatization contracts because they focus both government officials and contractors on outcomes. But just using performance contracts hardly ensures success. To work, the desired results must be quantifiable and government must choose the right metrics.
And as always with government contracting, the devil can be in the details. Two problems have often resulted in privatization deals going south for taxpayers. One is when private contractors are more sophisticated than the government officials they contract with, resulting in contract terms that can cause unforeseen difficulties. The second comes when state and local governments resort to privatization only as a last resort, after a problem has gotten so bad that they see no other option. This leaves the public sector with little leverage in negotiations. If it's also an area in which public officials have little experience, there can be a mismatch in terms of both subject matter knowledge and negotiating leverage.
While performance contracting can increase the likelihood of privatization delivering for taxpayers, success is never automatic. As with all forms of privatization, public officials must perform due diligence to ensure that the service in question is appropriate for outsourcing and that the contract is written to supply the desired outcomes.