The Organizational Context of Performance-Based Contracting in Child Welfare: Recent Evidence from a National Study

Background and Purpose: Public child welfare agencies (CWAs) are increasingly experimenting with privatization and performance-based contracting (PBC) to enhance contract services and program outcomes (Collins-Camargo, McBeath, & Ensign, 2011; Wells et al., 2014). The use of PBC as a policy/governance tool is predicated on the principal-agent theoretical premise that risk shifting will lead private CWAs to modify their internal structures to align goals and service technology in concert with contract-based accountability demands (Van Slyke, 2003). We test this hypothesis by focusing on two research questions: (1) Which private CWAs are most likely to have a PBC?; and (2) Are private CWAs with PBCs more attentive to the expectations of public CWAs than private CWAs without PBCs? 

Methods: Research questions were examined through quantitative analyses of data from the National Survey of Private Child and Family Serving Agencies (NSPCFSA). NSPCFSA gathered data from 446 nonprofit and for-profit agencies serving child welfare populations in nearly 40 states; agency directors completed an online survey between May-June 2011 (McBeath, Collins-Camargo, & Chuang, 2012). The current study sample was restricted to 422 agencies with full information available for analysis. Concerning the first research question, we used multivariate negative binomial regressions to examine whether agencies with more diversified service portfolios and greater administrative infrastructure had more PBCs, controlling for organizational demographics. Regarding the second research question, we used ordinal logistic regressions to examine whether agencies with one or more PBCs were more likely to be influenced by public CWA expectations in developing new programs, delivering existing services, and training staff.

Results: Less than a quarter of private CWAs (22%) reported having one or more PBCs; roughly half of these agencies had only one PBC. Concerning the first research question, providing a greater range of child welfare, health, and human services (IRR=1.08, p<0.05), and having better-developed administrative infrastructures (IRR=1.28, p<0.05), were associated with greater numbers of PBCs. Regarding the second research question, the presence of one or more PBCs was positively associated with agency director recognition of the salience of public CWA expectations in developing new programs (B=0.77, p<0.05), delivering existing services (B=0.84, p<0.05), and training staff (B=0.81, p<0.05).

Conclusion: Albeit drawn from a cross-sectional survey, these findings have implications for management and organizational theory, practice, and research. In alignment with principal-agent theory, results suggest that private CWAs are responding as anticipated to the accountability mechanisms embedded within PBCs. These findings also imply that organizational adoption of PBCs may be less risky for diversified, well-developed agencies than for agencies providing niche services or with little organizational capacity. Thus, the diffusion of PBC into child welfare—and its downstream effects on organizational change and program outcomes—may be occurring principally among a small set of early adopting agencies. As public CWAs expand their investment in PBC, they may need to provide specialized managerial training and organizational supports to less-prepared private CWAs. Future research should examine the diverse organizational and managerial support needs of agencies engaged in PBC.