Public and private sector roles in social services

Michael Raper
President, Australian Council of Social Service (ACOSS)

1. Overview

Common challenge in reform

Around the world, governments and community welfare organisations are grappling with finding new and hopefully better ways to address economic and social problems. This has led to changes in how community services are planned, financed and delivered; to some significant shifts in the respective roles of the state, markets and the non-profit community welfare sector; and to new forms of relationships between these parties.

In seeking these improvements and in assessing these changes, my organisation, the Australian Council of Social Service (ACOSS) starts from the deep conviction that governments and the community welfare sector share a common challenge and a common cause – to pool our collective wisdom and together develop policies, programs and partnerships in the community services field that achieve better outcomes for individuals, families and communities.

Community services in Australia have been the subject of a "reform agenda", as in many other OECD countries, for most of this decade. This is resulting in new or altered arrangements for planning, financing and delivering community services.

Drivers of reform

This community services reform agenda is being driven by a range of factors – some accepted as universal "goods" (such as the desire to improve outcomes for the people who use the services and society as a whole), while others are more contested (such as the desire to introduce "competitive markets" in human services and to cut government expenditure no matter what the cost).

Drivers of reform within the community services sector, the majority of which seem to be at work universally within OECD countries at least, include:

• A preference for market models, even if a market itself has to be deliberately created, thus leading to the increased "marketisation" of community services;
• A desire to change the mix of service providers and to open the newly created markets to new players including private sector providers under so called "level playing field" arrangements;
• A preference for "smaller" government, with a redefinition of its "core business";
• A desire to restrain or reduce public expenditure;
• A refocussing of the system towards client and community needs;
• A concentration on "outcomes" rather than processes or programs.

Benefits and negatives and shortcomings

The Australian Council of Social Service (ACOSS), and no doubt most community services organisations, supports changes which contribute to more effective and supportive communities and which improve the quality of life for the most disadvantaged people and regions.

Unfortunately however there is little doubt from the available evidence that, while some of the changes have been beneficial, others are having a negative impact on the individuals, families and communities that they are meant to benefit. Some of the reform processes are also having a significant impact on the non-profit community services sector, on its relationships with governments, and on its ability to continue making the type and level of contribution to individuals and to families that it has made in the past.

This paper identifies a series of shortcomings and challenges in the way that reform of community services in Australia is being approached with an attempt being made to concentrate on those that can be generalised, at least to other OECD countries. These include:

• Tensions and contradictions in the changing role of the community welfare sector and a significant change in the nature of the relationship between governments and community welfare organisations;
• A range of negative impacts flowing from the reform process which governments rarely acknowledge as a legitimate cause for concern, tending to dismiss them as simply "provider self interest"; and
• A focus on means not ends, so that administrative levers such as new funding mechanisms and tighter contracts become ends in themselves;

A compact to reflect a new negotiated relationship and set of arrangements

Not all the reforms that have occurred in Australia are bad, but it is clear in our experience that not all are good by any means. Despite these concerns, it would be illogical and short sighted to reject outright any importation of ideas or theoretical frameworks from the private sector. These need to be judged on a case-by-case basis for their appropriateness to the public sector and human services, and evaluated against the experience and wisdom that has evolved in the public and community sectors.

Many of the problems stem from the fact that reforms are driven by ideology or fashion and are imposed on the community sector without consultation. A far better outcome could be achieved through the negotiation of a compact between the government and the community sector. Such a compact would include at least the following components:

• The identification and clear articulation of shared goals regarding the outcomes being sought in the change process; and
• A formal agreement setting out the respective roles and contribution of governments and the non-profit community welfare sector in achieving these goals, and about the principles which underpin the relationship.

2. Drivers of reforms in the delivery of community services

Of the six main drivers of reform outlined above, the main two – the growing marketisation of welfare and the push for smaller government – need to be explored a little further before examining the consequences

Growing marketisation of welfare

The ideological commitment to market models has lead to the growing marketisation of welfare, which is manifesting itself in a number of increasingly commonplace trends, nine of which are identified below:

• Internal separation of departmental functions such as policy formulation, funding, purchasing and service provision;
• Separation of the role of government as funder and "purchaser" of services, from the role of agencies (government and non-government) that deliver them – service "providers";
• Increased contracting out ("outsourcing") of functions and services traditionally undertaken by government (including policy and research functions, technical functions, public consultation and participatory processes, and service delivery);
• A shift away from providing "grants" to non-profit organisations for a range of agreed purposes to purchasing specific services expressed as "outputs";
• Wider use of detailed contracts to define what is being purchased and the expectations in terms of performance and accountability;
• Increased use of tendering and other commercial practices to select and contract with agencies to deliver services;
• Linked to this, a wider application of processes which aim to guarantee a so called "level playing field" in terms of commercial, non-profit and public sector providers (based on the view that it is irrelevant who provides the defined outputs, so long as matters such as value for money, quality and accountability can be assured);
• A decline in government financial support for activities which contribute to community development, advocacy for individual and group interests, and processes which support public participation in direction-setting and decision-making;
• A greater reliance on "fee for service" practices.

Reliance on market models is ironic because Australia has developed a mixed economy of welfare provision precisely because of market failure in delivering positive economic and social outcomes to a significant proportion of the population. In our experience, the assumptions that underpin market approaches do not translate well to the provision of socially necessary services, particularly those which are directed to low income and disadvantaged people and communities.

Push for smaller government

The second major driver that we should explore a little more is the push for smaller government. Over the past decade or two there has been a dramatic shift in thinking about the role and organisational shape of government. Similar trends can be observed in other OECD countries where smaller government, reduced state intervention and deregulation are common trends.

In the 1980’s, concerns about the role and functioning of government were centred around management reform to address the hierarchical and bureaucratic structure of government agencies. In the 1990’s, the debate appears to be more concerned with whether government should retain its traditional functions and responsibilities. The concern is no longer simply about public sector agencies being inefficient. The private sector is increasingly perceived as somehow superior to the state in its ability to produce and distribute goods and services, and there are fears that too much state activity will "crowd out" private sector activities.

The drive for efficiency and reduced public expenditure has been a feature of reform reflected in strategies such as corporatising, privatising , outsourcing and downsizing public sector agencies.

Community sector organisations have been legitimately concerned about the push to reduce the size of government, partly because it is generally accompanied by a transfer of state responsibility in social welfare matters, and a reduction in publicly provided funds.

3. Community services reform in practice "privatisation" of employment services in Australia

In Australia, all this has lead to a number of fairly dramatic changes including:

• the complete outsourcing by tender of the Information Technology (IT) functions of all Commonwealth Government departments; and
• the significant introduction of a "purchaser / provider" split between the "design" and purchasing department (Department of Family and Community Services) and a new corporatised agency for the "delivery" of the Social Security / income support system (Centrelink).

However, the most radical and risky experiment has been the wholesale tender of, and contracting out, of the entire employment services system through the creation of the "Job Network".

Pre 1997 structure of employment services

In 1997, the Australian Government completely changed the way that services to unemployed people (employment services) are delivered in Australia by virtually wiping the slate clean and reestablishing the system through an elaborate tendering and contract process in which the Government’s own agency, the private sector and the not-for-profit community services sector were all placed on an equal footing, free to bid for contracts on a so called "level playing field" to form what the Government called its new "Job Network".

Prior to the establishment of the Job Network, each sector had a fairly distinct role, although there were some crossovers:

• Government agency – the Commonwealth Employment Service (CES) undertook the registration of all unemployed people and provided a national, universal job matching service along with the provision of other employment services and labour market programs (LMP’s) in conjunction with the community services sector.
• Community services sector – comprised of numerous traditional charities (mostly large) and local agencies (mostly small) which were given grants to provide case-management and Labour Market Programs (LMP’s) for a specified number of unemployed people (mostly long-term unemployed).
• Private sector – provided job matching services for temps and businesses looking for staff but was not involved in government funded services or LMP’s.

1998 – establishment of "Job Network"

In 1998, the Government established the Job Network by firstly corporatising the CES with its own Board and statutory charter. It then threw out the existing structure of LMP’s (standard national programs available to eligible unemployed people on a "one size fits all basis") and called for tenders for a new structure, the essential features of which were (and largely still are):

• Contracts would be awarded to agencies for up to a maximum number of clients (ie unemployed people) in each of three programs:
  • Job Matching (FLEX 1) – simply matching unemployed people with a job from the national, or the agencies own, database;
  • Job Search Training (FLEX 2) – assistance with curriculum vitae. preparation and job search / interview techniques;
  • Intensive Employment Assistance (FLEX 3) –for long-term unemployed (ltu) people provided on three levels:
    • FLEX 3.1 - $4,200 per successful outcome – about 67% of long-term unemployed people;
    • FLEX 3.2 - $6,700 per successful outcome – about 26% of long-term unemployed people;
    • FLEX 3.3 - $9,200 per successful outcome – about 7% of long-term unemployed people;
      
      
• Payment was made largely on the basis of a successful outcome (ie placement of a person in a job), not on the basis of client numbers or services provided (except in the case of Job Training). About 30% of the relevant Flex payment was provided up-front when a person was referred to an agency. Another 40% was paid once a person had been placed in a job for 13 weeks and the final 30% only if the person was still employed after 26 weeks.
  
  
• Tenders were not price competitive in the first round with the Government setting the prices (and being forced to adjust them after some months of operation). In the second round of tenders (some 18 months later in Nov 99), the tender process was partly price competitive but the Government set a base (or minimum) price. As might have been anticipated, most agencies bid at about the base price for fear of not winning a contract.
  
  
• The government cut $1.8 billion (over four years) from the budget forward estimates resulting in the overall level of employment services being severely diminished resulting in less than 50% of long-term unemployed people being able to gain access to Intensive Employment Assistance.

Outcome of first "tender" round

A significant number of existing employment service agencies refused to participate in the new Job Network, some for reasons of principle, others on practical financial grounds. A lot of valuable experience was lost, particularly in smaller towns and among smaller agencies.

A number of other community sector agencies went through the enormously complex tendering process only to miss out on any contract. Again, a lot of valuable experience and community infrastructure that had been built up over years, was lost as these agencies were forced to shut their doors.

Many agencies joined together into networks or amalgamated into larger agencies in order to:

• share the cost of the complex and expensive tender process;
• gain economies of scale in service delivery;
• obtain a competitive edge through gaining a national reach.

When the government announced the successful tenderers, contracts for Intensive Employment Assistance were offered roughly in the following proportions:

• government agency (Employment National) 40%
• private (for profit) agencies 30%
• community sector (not for profit) agencies 30%

In the community service sector, the bulk (about 70%) of all contract places went to about five large agencies.

Whilst successful tenderers were offered and accepted contracts for up to a certain number of "customers" in either one, two, or three of the programs, the Department of Employment gave no guarantee that agencies would actually get that many customers. (in fact many did not get the numbers that they bid for and have therefore not been able to get the "outcomes" that they anticipated.)

Second "tender" round

Throughout the life of the first round, the government was forced to make a number of significant adjustments to the rules and payment levels.

The second tender round resulted in:

• the virtual elimination of the government agency Employment National, as the Government’s own Department of Employment awarded it none of the "lucrative" Intensive Employment Assistance contracts on which most agencies relied to cross subsidise their other employment service programs, and indeed other, non-employment related programs (although most don’t admit this publicly);
  
  
• Employment National had done well in Job Matching and retained a large part of this program but had to be propped up with a grant / guarantee from the Government as the politics of its total demise were too difficult for the Government , at least at that time;
  
  
• Some large private sector agencies pulled out and others were eliminated on the grounds of poor performance;
  
  
• A number of community sector agencies were eliminated; the big agencies grew bigger and extended their geographic reach;
  
  
• There were more sites at which employment services were actually delivered in Round 2 however, despite the growth of the bigger agencies as a number of small and middle sized agencies got a share of Employment National’s former business.
  
  
• Contracts for Intensive Employment Assistance were offered roughly in the following proportions:
  • government agency (Employment National) — 1.2%
  • private (for profit) agencies — 48%
  • community sector (not for profit) agencies — 48%

4. Significant shortcomings in the reforms

ACOSS has identified a number of significant shortcomings in this whole reform process. These can be grouped under two major headings:

• Change to the role of the community services sector, and
• Negative impacts not acknowledged by governments.

This section draws heavily on the Job Network experience, but not solely. It also draws on other "welfare reform" examples over the last decade, the incremental impact of which we are now able to assess.

Change to the role of the community services sector

Policy and program frameworks now cast governments as the funder and/or purchaser of services, and community welfare organisations and other businesses, as providers of services which compete for funds with other eligible providers. Governments see themselves as primarily, if not solely, responsible for identifying needs and developing solutions to address those needs. The role of non-profit community organisations is reduced to providing a function or service defined by government for the best possible price (which may or may not be set by government). Some go so far as to argue that the theory itself prevents a greater role for "providers" in identifying needs and developing solutions to meet them, because such a role might be construed as a "conflict of interest" or "unfair advantage" when the time for distributing funds arrives.

In theory, under new funding models, the nature of the service provider is no longer important. The provider can be a private for-profit business, a small local organisation, a national company with no previous history with the local community or a multinational corporation – all are equally able to compete for funding. What matters is not the organisation’s mission, values or legal structure – the only relevant information is whether it can provide a function or service, which has been pre-determined by government, at the right price.

Community organisations are encouraged to become "more business like" in order to "compete". No matter what their size they are expected to develop skills in tendering for contracts, dedicating considerable amounts of time and money to the process in the hope that they will be successful. The large transaction costs of such processes are virtually never acknowledged.

We reject this narrow view of the community service sector – if this is the price of reform then the price is too high. We need to fight to rebalance and reassert our role as one that is much broader and much more dynamic than the one that is being assigned to us.

Negative impacts not acknowledged by governments

The second group of shortcomings in the reform process is a relatively long list of "negatives" – negative impacts on both clients, those people in need, and on community service organisations as service providers.

1. There has been a major shift, a fundamental shift, in client relations where the person in need receiving Social Security is no longer the client of Centrelink, the national Social Security payment agency, having been replaced by the "purchasing" department as the client whose requirements and needs really count. The Social Security recipient has been relegated to "customer" and treated accordingly.
   
   
2. The development of the separation of policy development from administration has seen the deterioration of on-the-ground experience feeding back into policy development. Feedback from the administration and implementation of policies is increasingly limited, often excluded altogether, with purchaser/provider splits, tendering out and contract arrangements.
   
   
3. There has been a significant loss of collaboration, cooperation and learning between community service agencies at the local level as competitive practices are introduced. Agencies are forced to strive for a "competitive edge" and this results in secrecy between agencies and a lack of sharing of "best practice".
   
   
4. There has been a decline in advocacy – resulting from funder intimidation where agencies do not want to lose their contracts in future rounds of tendering. In most cases, advocacy is also not allowed or provided for in the contracts. This has resulted in members relying more on ACOSS to carry out advocacy work while at the same time, they are not able to provide us with as much support.
   
   
5. The loss of other important community welfare sector functions – such as: community development and filling in the service gaps. With the move from general/core grants to tight contacts, these important functions are not funded.
   
   
6. The loss of transparency and full disclosure by contracting departments has resulted in a serious loss of data (for public analysis and debate). This situation arises from the dominance of "commercial-in-confidence" considerations in contract situations.
   
   
7. The situation of price competitive tenders has lead to a "race to the bottom" where the lowest price, or benchmark price, becomes the highest price that agencies feel able to include in their bid. This may be regarded as efficient in terms of price but often has a detrimental impact on quality.
   
   
8. The preoccupation with "outcomes" leaves those without an "outcome" with nothing at all; no training or skill development is required as payment is supplied on the basis of "outcomes" almost entirely. A 20% – 30% success rate can be sufficient return for the provider to make ends meet, meaning that many people requiring assistance are left with nothing at all. This tendency to focus on "outcomes" rather than "process" or "inputs" is a very short term focus and has clearly been taken too far.
   
   
9. The loss of flexibility and innovation by the community welfare sector as government seeks greater control over exactly what services are provided to whom. This has meant the loss of local agencies being able to adequately identify local need, seek funding and get on with the task of addressing the problems facing those in need.

This is obviously a serious list of shortcomings, qualifications and concerns. If we knew then (when the reform process began in small steps), what we know now (about where it would lead) we would clearly have insisted on a different approach.

One of the fundamental changes we would have sought (and are now seeking) is a compact or agreement with government, as outlined above, covering the role of the sector, the objectives of the reforms and the evaluation or measurement of success. Without any such agreement on our "common cause", a true partnership between government and the community welfare sector in the design and implementation of best policy and best practice is impossible to achieve. Ideology and fashion are poor substitutes and often prevent us achieving best outcomes for best value.

References

Much of this paper is drawn from a more detailed paper published by ACOSS: "Common Cause – relationships and reforms in community services", ACOSS Paper 102, November 1999.