Contracting and Negotiation: Effective Practices of Successful Human Service Contract Managers

Abstract

Governments increasingly need to rely on private, non-profit, and other non-governmental entities for delivery of services, and contemporary government demands that managers understand the negotiation and contracting process (Kettl, 1988; Salamon and Lund, 1989; Dudley, 1994). Many scholars refer to this service delivery method as indirect government, third-party government, indirect administration, or government by proxy. These terms generally apply to federal purchase of services. However, Kettl (1988) notes that state and local governments have also relied more and more on contracting for service delivery, including social services, where negotiation and contracting are central. Whitcomb (1984), Chi (1986, 1994), Savas (1987), Rehfuss (1989), DeHoog (1990), MacManus (1992), and others indicate that contracting for social services has been increasing. State and local spending on services from private sources tripled from $27 billion in 1975 to $81 billion in 1982 (Chi, 1986). Chi observes that this spending was primarily for economic development, transportation, social services, and welfare. Government reports also show that purchases of goods and services at the state and local levels have steadily increased in the 1990s, especially in service areas. Massachusetts, the focus of this article, reports that in 1993, 29 state agencies procured nearly $1.5 billion of social and rehabilitative services from over 1,400 predominantly non-profit providers. Purchase of service budgets accounted for 50 percent of the Commonwealth's Department of Social Services spending. Generally, this increase in contracting is for pragmatic (cutting costs) as well as ideological (alternative delivery, competition) reasons. Many authors emphasize administrative functions, e.g., pre-bid activities (feasibility studies), monitoring, and evaluation that are concomitant with the increase in contracting. Although contracting for social services has been increasing, there are barriers to this method of service delivery. Ross (1987), David (1988), MacManus (1992), and Chi (1994) describe numerous barriers that affect contracting at state and local levels. Inadequate knowledge of contract management, adversarial provider relationships, questionable cost savings, and service interruption are among the many barriers. In spite of these barriers, the scholars forecast that social service contracting will continue to grow. Models for contracting these services vary, depending on the number of suppliers, availability of resources, and level of funding certainty. Dudley (1990) illustrates various contracting models, such as competition, cooperation, and negotiation. Which model may be more appropriate for a particular contracting situation depends on resources, funding, and suppliers. Competitive contracting is discreet, market-oriented, and low in uncertainty. Cooperative contracting is relational and high in uncertainty. Lastly, negotiated contracting is flexible, multi-year, and moderate in uncertainty. DeHoog (1990) says the negotiation model may be the most appropriate for social service contracting. However, Savas (1987) argues that while negotiation has been the preferred model for social services, states are starting to bid social service contracts competitively. Also, whereas contracting has been the arrangement of choice, the use of vouchers, Savas notes, is increasing. Other issues raised with increased contracting include procurement changes, uncertain resources and costs, quality of care, responsibility, and accountability. For example, more women working and requirements for public assistance are major contributing factors for increased child care contracting. DeHoog (1990) found these soft, more complex human services increasingly of interest for examination. She contends that public managers and policy analysts should move beyond theory and address implementation and management practices in service areas. …