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ABSTRACT. Performance-based contracting is receiving increased attention today as a method of improving the efficiency, quality and effectiveness of government contract service delivery. While professional interest in performance-based contracting is being focused primarily on traditional government services, some of the more interesting applications are actually taking place in the human services. This article looks at performance-based contracting by selected state human service agencies, the approaches being used and results being achieved. The article concludes that performance-based contracting for human services does appear to be accomplishing its objective: changing the behavior of contractors to focus more on performance. The lessons learned by state human service agencies appear to have relevance for larger issues of public procurement.
INTRODUCTION
Regardless of whether one refers to the phenomenon as "privatization," "contracting out," "outsourcing," or some other appellation, governments at all levels (federal, state and local) today are making increased use of service contracting. For example, the federal Commercial Activities Panel of the General Accounting Office (GAO, 2001a, p. 4) reports that for fiscal year 2000, total federal service contracting reached $88 billion, surpassing all other categories including supplies and equipment ($77 billion), research and development ($24 billion) and construction ($17 billion). While similar data are unavailable for state and local governments, two recent studies suggest that the use of service contracting is also increasing. A national survey conducted by the Council of State Governments (Chi & Jasper, 1998, p. 4) reports that a majority (56%) of state departments and agencies has increased its use of service contracting. In the same vein, a national survey conducted by the International City/County Management Association (ICMA) finds that some 66% of local governments are considering increasing their use of service contracting (Martin, 1999a, p. 12).
Given the increasing interest in service contracting, it is not surprising that governments are also increasingly interested in discovering new ways of improving contractor performance. Performance-based contracting is one method governments are using to accomplish this goal (Gordon, 2001; Martin, 2000; OFPP, 1998; Eggers, 1997a). For example, the Bush Administration, through the Office of Management and Budget (OMB), has established an objective of making at least 25% of all federal service contracts over $25,000 performance-based in fiscal year 2002 (OMB, 2001). Looking farther a ahead, the federal...