Report Shares Lessons from New York City’s Innovative Welfare-to-Work Contracts
Albany, N.Y. — A new report from the Rockefeller Institute of Government offers insights into how state and local governments can manage work by private vendors serving public clients, based on New York City’s 15-year history with welfare-to-work contractors.
Many state and local governments have been contracting with private agencies to deliver public services in recent years, and some have tried to hold those agencies accountable for results through performance-based contracts. The Institute’s new report shows that using performance-based contracts is a challenging task for governments, one that requires extensive oversight and many adjustments over time to ensure contracts produce their intended effects. These conclusions are drawn from an in-depth account of the 15-year history of New York City’s use of performance-based contracts in helping welfare recipients find and keep jobs.
The report, “Performance-based Contracts in New York City: Lessons Learned from Welfare-to-Work,” examines how New York City changed these contracts over the years in light of feedback about how the private agencies served clients. The report offers insights to help other state and local governments design and improve their use of performance-based contracts, which the report shows do not always produce their intended effects.
The research was conducted by Swati Desai, Lisa Garabedian and Karl Snyder. Desai is a senior fellow with the Rockefeller Institute and an affiliated scholar with the Urban Institute. Garabedian is assistant deputy commissioner and Snyder is an analyst with the New York City Human Resources Administration (HRA), the agency responsible for administering New York City’s welfare-to-work contracts.
The report shows the number of New York City residents receiving cash assistance has decreased by 70 percent, while the number who find and keep jobs has also increased substantially, in the 15-year period since Congress passed the Personal Responsibility and Work Opportunities Reconciliation Act. The 1996 act, sometimes informally referred to as the welfare reform law, placed limits on the time a person could receive cash assistance and established the basis for welfare-to-work programs that emphasize moving recipients into long-term jobs and self-sufficiency.
After the law changed the focus of the welfare system from mere cash delivery to more complex and demanding participation in work and work-related activities, HRA began contracting with private vendors to help cash-assistance recipients find and keep jobs. Vendors received payments only if they achieved results defined by HRA, and HRA has been able to establish policy priorities by tying those payments to certain “milestones.” However, the first contracts did not always have the desired effects, and many changes had to be made in response to problems found in the ways vendors served different clients.
The authors outline four key lessons to be gleaned from New York City’s experience with performance-based contracts:
Lesson One: The design of contract payment milestones is critical for success. Milestones are interim goals that must be achieved for a vendor to receive sequential payments. Two factors are fundamental to designing an optimal milestone structure, the study found. First is how overall program goals are translated into contract payments that create incentives for vendors. Second is how milestone payments are weighted and balanced within the contract to encourage contractors to achieve multiple goals.
Lesson Two: Technology and performance management systems are essential to successful oversight of contracts. The use of performance-based contracts shifts the public sector's role from service provider to contract manager. This transition requires that governments have smart, effective systems that give public managers tools to effectively monitor what happens to clients and how vendors are serving them.
Lesson Three: Individual contractors do not behave the same way; contract design and management decisions must anticipate a variety of vendor approaches. Different strengths and program strategies among contractors are important components of a high-performing system that fosters diversity and competition.
Lesson Four: The contract must be flexible and adaptations must be made based on past performance. Ensuring adaptability within the contract structure can help keep services matched with the changing needs of local welfare populations — and fix other problems, such as underserving of hard-to-employ clients. Building strong programs requires continual evaluation of the program and contract models to determine what works and what can be improved.The report provides a more detailed overview of New York’s 15 years’ experience with performance-based contracting. To read it, visit the Institute Web site.