Redesigning the Hollow State: A Study of Florida Child Welfare Service Reform through the Lens of Principal-Agent Theory

Abstract

While principal-agency theory has greatly facilitated our understanding of governance and management in the hollow state, close examinations of how system designs affect agency problems has been rare. The purpose of this study is to explicitly investigate the effects of different contract configurations on agent shirking, which is a common problem in third-party service delivery arrangements. Florida's recent statewide privatization and reconfiguration of its child welfare service delivery system are analyzed for this purpose. Data were collected through intensive document reviews and interviews with the public managers and the contract agents who were involved in the reform. Major structural components of the redesigned system (such as overall contract configuration, procurement policies, oversight mechanism, payment methods, and vendor governance structures) are examined and compared with those of the old system. The results of the analysis suggest that the Florida reform installed several structural devices intending to curb agent shirking that plagued the old system. The most significant changes involve a transition of the contracting scheme from a fragmented quasimarket based on dyadic contracting to an integrated service network based on a managed care model, a shift of the focus of the contract oversight from compliance and process to service outcomes, and a transfer of programmatic and financial risks and uncertainties from the government to vendors. Further, the findings of the study reveal some unintended consequences of the reform. For example, the reconfigured system that empowers communities also promotes local parochialism that hinders the government's statewide policymaking ability. The reform that consolidates contracts into the hands of a few large vendors under a standardized contract management system unites the vendors around their common interests to confront their government principal.

Keywords:

• contracting
• hollow state
• principal-agent theory
• social service
• child welfare

Notes

¹Based on the confidentiality provided through consent forms and general preference of the interviewees to remain anonymous, this study does not publish the actual names of the interviewees and their organizations. Whenever possible, however, general references to the types of organizations (e.g., DCF or lead agencies) and the broad position titles of the interviewees (e.g., administrator from the DCF or a chief executive from a lead agency) are provided in the text along with specific interview dates. A total of 36 people were interviewed (25 females and 11 males). Their organizational affiliations are: OPPAGA (2 females), CBC contract managers at the DCF (7 females), middle- and upper-level managers at the DCF central office responsible for family safety program and contract support (2 females and 5 males), DCF district and regional offices (1 female and 1 male), and lead agencies (13 females and 5 males). While the gender make-up of the interviewees from lead agencies was predominantly female, two of the five males from those organizations were chief executives. Data were not officially gathered regarding typical demographic information (e.g., age, education, etc.) as well as their professional backgrounds. However, it is interesting to note that the majority of the lead agency interviewees, including upper-level managers and one chief executive, previously worked for the DCF before the reform took place and massive layoffs ensued.

²Readers who are interested in obtaining a more detailed list of the interview questions can contact the author.

³The Department of Child & Family Studies at the Louis de la Parte Florida Mental Health Institute at the University of South Florida contracted with the DCF over the last several years to conduct comprehensive evaluations of the DCF reform efforts. The results of its studies have been published almost annually since 2003. The evaluations broadly investigate fiscal, administrative, as well as program aspects of the reform implementation and assess the service outcomes of the privatized system under the reform. The Office of Program Policy Analysis and Government Accountability (OPPAGA) evaluates and publishes, independently from the University of South Florida (USF), on similar aspects of the reform. The author reviewed and compared all the CBC-related evaluation studies and reports published from these two institutions between 2002 and 2009 for this analysis.

⁴Budget figures include not only outsourced child welfare services but also the DCF family safety program office operations and the direct services still provided by the department such as child welfare legal services and child protective investigations. Funding per child figures are calculated by dividing the total child welfare program budget by the number of children and young adults receiving services at the end of the same fiscal year (OPPAGA 06-50).

⁵Interviews with the DCF's contract administrator and monitor (June 2, 5, 2008) and reviews of the DCF's monitoring documents (see, for example, Florida Department of Children and Families 2003) suggest that the department's compliance-based contract oversight is performed in limited extent mainly due to the lack of resources. The frequency of oversight depends heavily on the level of risk vendors present (such as past violations, turnover in leadership, contract dollar amounts, etc.). The quality and intensity of monitoring tools significantly differed, ranging from some districts using less than 10 pages-long checklists for both administrative and programmatic monitoring and producing equally short monitoring reports, to other districts employing more than 50 pages of detailed program oversight tools and issuing lengthy monitoring reports filled with excruciating details. With the multiple organizational changes that occurred during the statewide child welfare reform, contract monitoring is currently much more centralized and standardized.

⁶Lead agencies are solely responsible for overseeing their subcontractors. The interviews indicate that many lead agencies use the monitoring tools that are similar to those of the DCF, which focus on compliance with procedural requirements.

⁷The same risk shifting strategy is not used by the lead agencies when they subcontract with their network vendors.

⁸The common solicitation method used for procuring CBC contracts is “Invitations-to-Negotiate” (ITN). While “Requests-for-Proposal” (RFP) is a more typical procurement method for social services, ITN is almost exclusively used for CBC contracts because of the complexities and flexibilities involved in the outsourced services. Bidders are assessed through a two-tier vendor evaluation system where they are first examined regarding organizational, financial, staffing, and program capabilities to carry out large-scale CBC contracts (see Appendix A for the entire list of the evaluation criteria). A standardized ratings system is applied to compare bidder performance. The “merit score” mentioned in the text refers to this evaluation tool. Vendors who make the short list are asked to submit detailed program and service implementation proposals. Specifics about deliverables and other contract terms and conditions are heavily negotiated during this second phase of the ITN bidding process.