Social services are among the functions of state government most frequently contracted out by states and counties. In the Apogee study, 38 percent of state agencies responsible for providing social services reported contracting with private firms. Contracting out can be used successfully in the delivery of social services; such opportunities include: child support enforcement, adoption services, disabilities rehabilitation, drug and alcohol treatment programs, vocational training, and employment retraining.


States and counties are under increasing pressure from the federal government to step up their activities in getting fathers to contribute to their children's upbringing. Wyoming, Tennessee, and Los Angeles County all contract with the private sector for child support enforcement.

In Tennessee, for example, Policy Studies Inc. (PSI), was awarded in 1991 a five-year contract to operate the state's child support enforcement program within a four-county area. The program is almost entirely administered by PSI. Tennessee pays no upfront fees for the service, instead paying PSI 13.5 percent of all collections. Collections went up 35 percent in the first four months of private operation.[78]


The Wisconsin legislature in 1986 changed state statutes to require counties to handle all general relief. Brown County, in turn, privatized its entire general relief program. Costs went down from $411,000 to $190,000, because the private firm was able to operate the program more efficiently than the state.[79]


Most job training and retraining programs target three types of individuals: workers from traditional industries that have been layed off; high-school dropouts, and welfare recipients. Many states contract with private firms to provide training to these individuals. California, Illinois, Massachusetts, and New York, for instance, contract out some job training and retraining.

Connecticut, Massachusetts, New York, Texas, and Wyoming have all contracted with private firms to assist Aid to Families with Dependent Children (AFDC) recipients. In most of these cases, the private firms are paid according to the number of welfare recipients they are able to place in jobs and how long these people stay employed. The contractors are usually paid little or no money for clients whom they can't place in jobs. New York and Connecticut contract with America Works, a welfare job-placement agency, to find jobs for over 700 hard-core unemployed, 68 percent of whom are permanently weaned from the welfare rolls.[80] The firm saves New York and Connecticut taxpayers over $4.5 million annually.

Two-thirds of the welfare recipients taken on by America Works have previously been in government-sponsored training and education programs. According to private industry service providers, one of the main reasons for the failure of the government programs to place more clients is government's training-heavy approach.[81] The private firms, on the other hand, emphasize getting people in jobs quickly and letting them experience the rewards of regular employment.

Contracts for employment training should be competitively bid and should contain incentives for the provider to place the clients in jobs, performance being based on the number of people who are able to obtain and keep jobs.

Not all social-service contracting is as successful as some of the cases outlined above. The reason: one of the key elements in successful contracting is that detailed contract specifications can be written about the service under consideration.[82] Outputs for typical public works services such as garbage collection and street cleaning, for instance, are easy to specify in detail. Results are much harder to quantify, however, for most human services, thereby making effective contract monitoring far more difficult.

Due to this problem, contracts for human services are often judged according to meeting input measures-such as the number of "credentialed" employees—rather than on the basis of their effectiveness. Moreover, social-service contracting is also often laden with a morass of regulations.

The majority of social service contracts are with large nonprofit organizations and are negotiated rather than competitively bid. In fact, many states have laws that prohibit for-profit companies from competing with nonprofit agencies, and also exempt social services from the competitive-bidding process applied to other government contractors.[83]

These problems have greatly reduced the potential for cost savings, efficiency gains, and service improvements by contracting for social services. Therefore, other forms of privatization may, in some cases, be preferable to contracting out in social services.

One option is to remove government involvement altogether from the service and rely instead on voluntary institutions such as community groups, families, and churches to provide the service. Nearly all the social programs now administered by government are also provided by voluntary institutions funded by private donations.


If the government decides to fund a social service, rather than rely on voluntary institutions, vouchers are often a better privatization technique than contracting out. Vouchers allow service recipients to choose their own service provider and empower individuals to make more decisions for themselves. They also bring consumer pressure to bear, thereby creating incentives for individuals to seek out low-cost, high-quality producers.[84]

In addition to education and health care, discussed earlier, other areas in which vouchers may possibly be used are employment training, day care, drug treatment and alcohol, assistance for the elderly, disabilities rehabilitation, housing, vocational education, and recreation services.


Rather than running day-care centers, governments can assist low-income families with obtaining day care by providing day-care vouchers. New Jersey, Pennsylvania, Arkansas, and Maryland all have pilot programs for day-care vouchers. In New Jersey, parents were pleased with the voucher program, which costs 25 percent less than contracting out for day care and was also substantially less expensive than state-operated centers.[85]


America's public vocational rehabilitation system is funded 80 percent by the federal government, and 20 percent by states. States are free to design and operate the programs as long as they stay within broad parameters set by Washington, D.C. Over the years, the program has had little success returning handicapped people to the workforce. Less then one-half of one percent of the almost 3 million workers on the social security disability rolls in the rehabilitation program return to work each year.[86]

Switching to a voucher approach offers a promising option for improving this government program. Vouchers given to eligible handicapped people could be used to buy medical, vocational, or educational services from private companies or public agencies. By introducing competition among competing providers and giving the client freedom of choice among suppliers, vouchers create strong incentives for service providers to develop innovative rehabilitation programs at lower costs, thereby bringing down program costs. By giving them choices in the marketplace, voucher programs would also empower handicapped people to play a more active role in their own rehabilitation.

A private voucher program that could serve as a model for state agencies is the Denver Center for Independent Living in Colorado. The Center outfits handicapped people with vouchers for the purchase of equipment and services that enable them to continue to live independently. The vouchers have been used to purchase a wide variety of goods and services, including: orthopedic shoes; wheelchair repairs; home modifications; a wheelchair lift for a car; and daily specialty items that help the handicapped dress themselves. The year-old, fully private program has already assisted over 140 handicapped people.

To ease the transition for state social service employees as private provision of social services is introduced, these employees could be assisted with establishing their own private social service firms that would compete for vouchers with other providers.[87]

The chief drawback to vouchers is the danger that, due to political pressures, the voucher's initial value will later be increased and eligibility standards eased, thereby making more people eligible for the voucher. The result: costs could greatly increase.[88]

The pressures for inflating the value and eligibility of the voucher is especially pronounced when the vouchers are fully or partly funded by the federal government. In many of these cases, states would have little reason to control the cost of the program because the state only funds the administrative costs, and thus would not receive any of the savings from restraining the program's growth.[89] One solution may be to provide block grants to the states based on total expenditures of the program and make the states responsible for a certain proportion of the expenditure. States would also be responsible for determining detailed eligibility rules. States would thereby have the ability to widen eligibility but would have to provide the additional money themselves.[90]