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A Lack of Oversight in the Garden State is Placing
New Jersey Residents and Assets at Risk
verlooking
versight:
Department of Labor Studies and Employment Relations, New Brunswick
Department of Public Policy and Administration, Camden
MARCH 2014
JANICE FINE, PATRICE MARESCHAL, DAVID HERSH, AND KIRK LEACH
RUTGERS UNIVERSITY
OVERLOOKING OVERSIGHT 2
Contents
exeCutive summary ........................................3
key Findings ..............................................4
reCommendations ........................................6
Full report ..................................................9
part i:
Why is Oversight Important? ................................... 12
part ii:
Findings from a Review of Contractor Oversight in New Jersey ..... 13
part iii:
Case Studies: Examples of Failed Oversight and
Their Consequences ............................................21
part iv:
Recommendations ............................................. 30
Financial support for this study was provided by In the Public Interest, the Rutgers School of Management and Labor Relations, Rutgers Department of Public
Policy and Administration, and the New Jersey AFL-CIO.
Financial support for this study was provided by the Rutgers School of Management and Labor Relations, Rutgers Department of Public Policy
and Administration, the New Jersey AFL-CIO, and In the Public Interest.
OVERLOOKING OVERSIGHT 3
exeCutive summary
Governments and to some extent scholars have long treated contract oversight as
a trivial or at best mundane sideline to broader issues of privatization. This is a
critical mistake. In the context of human services, contractor oversight can prove to
be a life or death question. In all contexts, it is crucial to protecting taxpayers’ investment in
their government. From services provided to the most vulnerable among us, like child
protection and the treatment of the disabled, to prisons that protect us from harm, to more
prosaic tasks like maintaining infrastructure, states provide a broad array
of services that dramatically affect our lives. The fact that states contract with private
companies to provide ever more of these services therefore takes on a heightened sense of
urgency. As a corollary, the means by which states oversee these contractors goes from a
mundane matter of public administration to a vital matter of public interest. Bucking the
trend against detailed examinations of administrative capacity, we conducted an in-depth
analysis of how New Jersey oversees its contractors. Our ndings were eye-opening.
Recent events highlight the urgency of this issue. Failure to properly oversee the contractors
responsible for the Department of Corrections’ Residential Community Release program
resulted in the death of innocent people. More recently, the failure to properly manage the
administration of recovery funds following Hurricane Sandy delayed needed aid to Sandy
victims for many months and led to millions of dollars in unexplained costs.
Contracting for services is not inherently bad. Contracting can be an important tool for
government if it is done for the right reasons and if it is done well. Government can
legitimately contract in order to tap into special expertise, to carry out activities that would
be better delivered in a community setting or to augment state capacity in a specic area.
Research tells us that to be effective however, contracts must be carefully managed.
Management at its core is about the construction and maintenance of collaborative
communities1 who share large amounts of information in real time and among whom
cooperation is incentivized and rewarded and led by skilled individuals given the time to
do the job. Contracting units must educate contractors about performance measurement
and monitoring requirements.2 Moreover, contracting units must develop standards and
communicate clear and explicit guidance on what is expected from contractors.3 Research
also tells us that government must engage in thorough contract costing before a contract is
1 Adler, Paul S., and Charles Heckscher. “Towards collaborative community. The firm as a collaborative community: Reconstructing trust in the knowledge economy (2006):
11-105, http://www-bcf.usc.edu/~padler/research/01-Heckscher-chap01%20copy-1.pdf. (accessed Feb. 2014)
2 Amirkhanyan, Anna. “Privatizing public nursing homes: Examining the effects on quality and access.” Public Administration Review 68, no. 4 (2008): 665-680.
3 Weil, David, The Fissured Workplace (Harvard University Press, 2014).
OVERLOOKING OVERSIGHT 4
let, ensure transparency from the bidding stage through contract execution, put in place a
system of monitoring and auditing to ensure that standards are being followed, set
outcomes-based benchmarks with clear performance measures, conduct regular, qualitative
multi-stakeholder evaluations of services provided, impose signicant penalties in the face
of failure to meet goals and rebid all contracts at most, every 3 years. This list highlights two
key points. First, overseeing contracts is difcult to do well. Second, it requires experienced,
well-trained government employees given the time to manage with care.
Our review of contractor oversight in New Jersey shows that the state is failing in its
duty of protecting vulnerable citizens from poor service and taxpayers from wasted funds.
At the core of the problem is a complete lack of priority given to oversight despite a
preference for contracted service provision. This is best exemplied by the massive
shortage in qualied staff to manage contracts. Our recommendations are designed to
drastically improve the quality of the state’s oversight of its contractors and thus make
it a better steward of the public interest. We base our recommendations on the simple
principle that quality oversight should be seen not as a luxury to be dispensed with in
the face of austerity but as an inseparable element of the contracting process.
Finally, it is important to note that the current state of affairs evolved over a long period
of time, under both Democratic and Republican administrations.
key Findings
Signicant Neglect of On-the-Ground Oversight
Effective oversight of contractors involves:
1. adequate stafng and training of contract managers
2. thorough contract costing and design
3. strong ongoing communication and cooperation between contract managers and
contractors
4. strategic contract monitoring with clear performance requirements and standards
Capacity in all four elements of contractor oversight is severely lacking.
Attrition is a predominant problem, depriving every contracting unit we studied of practical
expertise while simultaneously increasing the burdens on those workers that remain. This is
not surprising, given the structural lack of priority given to oversight. It occurred in
all four of the departments for which we were able to obtain such information. Here are
a few examples:
• Ofce of Information Service’s workforce, critical to providing the data necessary
for oversight, has dropped from 82 in 2003 to 54 in 2012
• The Ofce of Auditing within the Department of Health Services has been reduced
from 60 staff to 30
• The Department of Transportation has lost approximately 50% of its staff in the
past ten years, putting tremendous stress on remaining staff particularly with
respect to Contract Managers
OVERLOOKING OVERSIGHT 5
No contract costing and minimal specication of contract terms prior to the issuance of RFP’s.
Every ofcial we asked conrmed that, to their knowledge, costing was not done in any
systematic way.
Contract Managers are not always qualied or properly trained to fulll their roles effectively.
According to ofcials from every department studied, there are not enough human
resources being assigned to oversight and effective oversight is not being fullled by many
of the individuals who are being designated as Contract Managers.
Contracts had weak performance requirements and standards. Only a minority of contracts had
outcome-based performance measures and there was little evidence of performance targets
being integrated into a comprehensive oversight system. Only the Department of Mental
Health Services (DMHS) had clear, outcome-based performance measures in contracts
combined with a comprehensive system of oversight.
Very few contracts required specic data collection and reporting, outcomes-based benchmarks with
clear performance measures and milestones tied to payment despite these being widely accepted
best practices. Similarly, very few contracts had automatic sunset provisions and
requirements that contractors would have to reapply in a competitive bidding process.
There are substantial impediments to transparency. The biggest of these is that contract data
for human service contracts is not kept in any systematic way. As a result, it is nearly
impossible to gather information on these contracts.
Structural Deciencies in State Oversight
Many of the most signicant oversight decisions and processes are subject to few
if any formal rules. The Department of Public Purchasing (DPP), which has primary
responsibility for procurement in NJ, regulates and enforces only one part of the process:
bidding. Moreover, contracts that go through DPP are estimated to account for only 50%
of the total number of contracts in which the state is engaged. Strikingly, services provided
directly to NJ’s citizens through third party contracts are exempt entirely from DPP
oversight, including bidding requirements.4 In 1976, the Attorney General issued an
opinion indicating that DPP is not required to exercise oversight of the procurement
process where the end user of a purchase is a third-party, rather than the state itself.
Notably, this includes most of the services with which the public is concerned, for
example, the provision of the overwhelming majority of human services, such as those
provided to the developmentally disabled, to abused children or to struggling families, not
to mention the detention and rehabilitation of a large number of criminals. As a result of
this exemption, regulations governing the contracting process for these critical services are
left to the individual departments. While some departments have created their own
regulations, others have not. In all cases, the regulations fail to ensure sufcient protections
for the vulnerable clients who received the services and the taxpayers who pay for them.
The Independent Ofce of the State Comptroller (OSC) and the legislative Ofce of the
State Auditor (OSA) both have authority to review decisions and audit processes.
4 This opinion continues to define the parameters of DPP oversight today so that oversight of contracts for which the end-user is a party other than the state (“Third-Party
Contracts”) is entirely decentralized, handled by each department as it sees fit.
OVERLOOKING OVERSIGHT 6
However, both agencies’ roles are limited by resources and regulations to after the fact,
retroactive analyses of only a small group of contractors. The State Commission of
Investigation (SCI) also conducts investigations relevant to oversight, but is similarly
limited. They investigate only when there is reason to think there is something that needs
investigation and are, as currently constituted, not in a position to evaluate systemic issues
and recommend changes before disaster strikes or money is wasted.
There are no institutionalized mechanisms within state government to ensure that sufcient
resources exist so that individuals responsible for the majority of oversight are able to do the job
well. Simply put, the budgetary process does not build in the cost of oversight of
contractors at individual state agencies.
There does not appear to be any agency within the state with the capacity or competence to monitor
the overall efciency or effectiveness of resources allocated to contractors. OSC and the Ofce of
Management and Budget (OMB) are prime candidates, with relevant competencies, but
neither currently has a mandate or the resources to do so.
Lack of Oversight has had signicant consequences for vulnerable people and for New
Jersey taxpayers and is continuing to place assets at risk
• A lack of contract monitoring at DCF’s Division of Child Protection and
Permanency (DCPP) leaves children vulnerable to being served by inadequate
providers
• Lack of oversight at DHS’s Department of Developmental Disabilities led to
substantial waste of taxpayer money with little assurance that services for which
the state has contracted are being provided
• Lack of oversight at DOC’s Residential Community Release Program (RCRP) led
to assaults and deaths in the facilities as well as in communities
• Lack of oversight of the state’s Hurricane Sandy relief and rebuilding programs led
to the inappropriate denial of aid to thousands of families and businesses
reCommendations
In drafting recommendations, our biggest priority is to ensure the institutionalization of
oversight as an unseverable element of the contracting process. We do this primarily
through statutory and regulatory changes or additions that do the following:
• Eliminate the budgetary disincentive to fund administration, ensuring sufcient
resources for other recommendations
• Eliminate the blind spot for third party contracts
• Fill gaps in oversight for both the RFP generation and contract management stages
of the process, and
• Create capacity and a mandate for systemic oversight.
OVERLOOKING OVERSIGHT 7
Statutory Changes and Additions
Eliminate the Gaping Hole Caused by the Exemption for Third-Party Contracts Every statutory
change listed below should make explicit that its provisions apply to third-party contracts.
Sufcient Resources Requirements The legislature should enact legislation that conditions the
issuance of service contracts on sufcient resources to oversee those contracts and provides
a oor on the level of resources that may be deemed sufcient.
New State Contract Manager Requirements The sufcient resources requirements should
explicitly include managers to rebuild the corps of State Contract Managers. Every State
Contract Manager should also have expertise in both contract management and the
substantive area of the agency.
A Ban on Outsourcing Oversight The State should eliminate any ambiguity around whether
oversight can itself be managed by a contractor with a clear statute precluding the
outsourcing of oversight activities.
Compulsory Contract Costing Before a contract is let, the state should require a three-step
cost comparison including ABC accounting, an avoidable cost analysis and a comparison
of avoidable cost with the contract price.
Make Certain State Commission on Investigation’s Recommendations Binding The legislature
should enact legislation making recommendations from SCI investigations binding under
certain conditions.
Require all human service contracts to establish mechanisms for client, family and line worker
voice. The legislature should enact legislation that requires DHS to establish an
ombudsperson to represent clients, their families and line workers and community
oversight committees that have formal and ongoing roles in enforcement.
Include all state contract managers, state employees, contractors and contractors’ employees who
raise questions about the quality of service being delivered under the New Jersey Conscientious
Protection Act (CEPA). At present, only nurses are covered for whistleblowing related to
quality of service issues. We propose to extend this protection to all state and contract
workers and managers.
Rebidding Requirements The State should require that all human service contracts be rebid
after, at most, 3 years.
Transparency from bids through contract execution All information relevant to determining the
effectiveness and efciency of every contract should be made publicly available in a
centralized and standardized format.
Authority and Appropriations for Data Systems Legislation mandating and enabling the
development of appropriate data systems will facilitate the other recommendations
included here.
OVERLOOKING OVERSIGHT 8
Regulatory Changes
Exemplary service providers should be involved in the drafting (as opposed to just the
comment period) of the regulatory requirements derived from the authority granted in the
above statutory requirements. In addition, the following regulatory changes should be
made under existing authority, again with exemplary service provider input in the drafting
stage. These changes should apply to third-party contracts.
Additional Requirements for all RFP’s and Contracts DPP should provide additional standard
language to be included in all RFP’s to ensure contract terms that provide additional
protections to the state and taxpayers
Detailed requirements for Data Systems To be effective, systems and the data contained in
them must be standardized. Regulations should be created to effectuate this.
Improve Data System to Facilitate Better Oversight and
Meta-Oversight
A data system should be created that is ubiquitous, centralized, accessible and includes
data that can be used to hold contractors and contracting units accountable.
OVERLOOKING OVERSIGHT 9
Full report
Introduction
States provide a broad array of services that directly affect residents’ lives. Foremost
among these are critical human services provided to the most vulnerable among us,
from child protection to the treatment of the disabled. Equally critical are those
services involved in the protection of the rest of the population from others, such as the
handling of convicted criminals. Add to these the construction and management of
infrastructure, the protection of the environment and the administration of social programs
like Medicaid and welfare and the picture of just how much we are all affected by what
government does becomes clear. Because of this, we all have a great interest in how well
these things are done. At the same time, because these services are taxpayer funded, we also
have an interest in the cost of their provision. As such, the fact that the state contracts with
private companies to provide ever more of these services takes on a heightened sense of
urgency. As a corollary, the means by which states oversee these contractors goes from an
archaic matter of public administration to a vital matter of public interest. While there is
much debate surrounding the merits of privatizing public services, to the extent that it is
being done, all sides should agree that states have a duty to ensure that clients are receiving
quality services and taxpayers are receiving a good value.
Issues in the wake of Hurricane Sandy bring the issue into focus. Documents released by the
Fair Share Housing Center paint a disturbing portrait of what can happen when oversight is
neglected. Contractors awarded multi-million dollar contracts and charged with administering
millions in Sandy Recovery funds were supposed to be overseen by the Department of
Community Affairs (DCA). But last December, the Christie Administration terminated the
largest Sandy contractor, HGI (Hammerman & Gainer) which had a 3 year, $67.5 million
contract to manage the RREM program5, and more recently, the URS Corporation, which had
a $20 million contract to supervise the rebuilding of homes destroyed in the hurricane6. Their
failures had far-reaching consequences for Sandy victims. Ofcial guidelines for the Renovation,
Reconstruction, Elevation and Mitigation (RREM) program that DCA was in charge of
overseeing were not adopted until ve months after the program started and were not made
available to the public. Recovery centers frequently lost applications or provided misleading
advice on what documentation was needed, ultimately thousands of homeowners were
wrongly found to be ineligible and the appeals process was poorly publicized.7
5 Colleen O’Dea, “Botched Process Denied NJ Residents Millions in Sandy Relief,” NJ Spotlight, Feb. 7, 2014.
6 Matt Katz, “NJ Quietly Fires Second Contractor Hired to Help Sandy Victims,” NJ Spotlight, Feb. 14, 2014.
7 Fair Share Housing Center, et al., “The State of Sandy Recovery: Fixing What Went Wrong with New Jersey’s Sandy Programs to Build a Fair and Transparent Recovery
for Everyone,” Housing and Community Development Network of New Jersey, January 2014, http://www.hcdnnj.org/assets/documents/report%20state%20of%20sandy.
pdf (accessed Feb. 2014)
OVERLOOKING OVERSIGHT 10
This is not merely a matter of poor governance of emergency funding, however. While
state governments are actively engaging in government contracting, research strongly
suggests that government capacity to provide adequate and effective oversight has
dwindled. 8 The two keys to contract oversight are (1) well-written contracts adequately
dening the responsibilities of the contractor and the protections of the state and (2)
strong, experienced, well trained managers with a deep knowledge of the activities they
are monitoring and time to do the job well. Unfortunately, between 2004 and 2011, the size
of the state workforce in New Jersey shrank by 36,319 while the total value of contracts
held steady and in some years increased quite signicantly9. Management professionals in
both public administration and private sector supply chain management agree that strong,
relational contract oversight is critically important to ensuring that contractors are
fullling their obligations and that taxpayers are receiving quality public services.
When employment is shifted to another party that is paid to provide services, the lead
employer is simply “less able to monitor performance, since those doing the work are now
potentially hidden within another organization.”10 Best practices in the business literature11
suggest that lead rms maintain quality in services delivered by their subcontractors, by
providing for 3 things:
• Clear and explicit guidance on what is expected
• A system of monitoring and auditing to ensure that those standards are followed
• Signicant penalties in the face of failure to meet goals
Given the drastic decline in the state workforce, and the number of Garden State citizens
dependent upon the services of contractors, it is crucial that we understand the state’s
capacity to manage and oversee them. What we have uncovered is a stunning lack of
effective oversight in the state due to the stripping out of experienced state contract
managers and the overloading of those who remain. As a consequence, largely what we
have is oversight by audit and expose, which only catches problems after they arise and in
many cases only once they have become quite severe.
The contracting process proceeds in three stages:
1. RFP generation
2. Bidding
3. Contract management
The RFP generation stage is critical because it is here that the terms of the contract are
created. Prospective contractors bid on the RFP and the terms of that RFP ultimately
become the vast majority of the terms of the contract between the state and the winning
bidder. Thus, over the course of the process the RFP essentially becomes the contract,
meaning that the RFP also effectively denes what the state can demand of the contractor
and what remedies are available if the contractor fails to live up to its duties. We focused
8 Van Slyke, David M. “The mythology of privatization in contracting for social services,” Public Administration Review 63, no. 3 (2003): 296-315.
9 Despite our best efforts to arrive at comprehensive numbers, we have only been able to obtain figures regarding Department of Purchasing and Property contracts. The
state Office of Management and Budget generally estimates that these contracts account for approximately 50% of all state contracts. We have no data about the other
50%, which includes all human service contracts.
10 Weil, The Fissured Workplace, 59.
11 Ibid., 63-73.
OVERLOOKING OVERSIGHT 11
far less on the bidding process, as this process is the most heavily regulated by far and has
been studied by others. Contract management covers the process by which the state
ensures that contracts are being properly executed by contractors. It involves both people
who maintain relationships with contractors and clients, and systems that facilitate the
work of those people. In analyzing these three stages, we also learned about the
overarching institutions — laws, regulations and policies — governing the entire process.
We found signicant issues in both of the stages that we studied in depth as well as in the
overarching institutions. Where legal and administrative structures exist, they are not
being effectively implemented. Where they do not exist, people and systems are not
sufcient to compensate.
Our recommendations, based both on our ndings and our review of the literature, are
designed to drastically improve the quality of New Jersey’s oversight of its contractors and
thus make it a better steward of the public interest. We argue that quality oversight should
be seen not as a luxury to be dispensed with in the face of austerity but as an inseparable
element of the contracting process. Where our recommendations would lessen the cost
savings sought from privatization, the conclusion should not be that oversight is too
expensive, but that that the particular service may not be a good candidate for
privatization. We are not taking a side in the debate about the merits of contracting with
third parties to provide services to state government — beyond stating that there are
instances where it makes sense and instances where it does not. We aim instead to inform
that debate by demonstrating that to reap the benets of hiring contractors, New Jersey
cannot continue to overlook oversight.
Methodology
In conducting our review of the New Jersey state government’s capacity to oversee its
contractors, we analyzed a rich source of relevant documents, including applicable New
Jersey statutes, administrative code provisions, executive orders, government circulars,
organization charts, service contracts/RFP’s, select reports from the Ofce of the State
Comptroller and news articles. We also interviewed current and former state employees
from as many departments as possible, as well as outside experts. In addition, we
reviewed two OSC audits of contractor oversight — Department of Human Services’
(DHS) Department of Developmental Disabilities (DDD) and the Department of
Correction’s (DOC) Residential Community Release Program (RCRP) — to support a more
in-depth look at particular instances where oversight issues we had identied in our
research had signicant consequences in practice. Finally, we reviewed reports and data
available on the yourmoney.nj.gov website.
We had a difcult time getting at what we needed: data about state contracts not held by
the Department of Purchasing and Property was not available and much data on
employment in oversight-related positions was not kept in any way that made it easy to
request. One overarching issue with OPRA requests is that they are for specic documents,
rather than answers to research questions. This often made us feel as though we were
playing a game of twenty questions with NJ state agency ofcials. Additionally, responses
OVERLOOKING OVERSIGHT 12
to our OPRA requests were often considerably delayed, redacted and in some instances,
never provided. DCF refused to cooperate with our requests to speak with staff. Although
Executive Order 812 was an attempt to add some level of transparency, in truth it provides
overly general and vague performance data.
This report is divided into four sections. Part 1 discusses why oversight is such a critical
component of the contracting process. Part 2 describes problems commonly associated
with government oversight and highlights their specic impacts in New Jersey. Part 3
includes several case studies that illustrate how oversight failures manifest themselves in
practice and what the consequences are for taxpayers and the impact on critical public
services. The case studies feature examples from four New Jersey agencies: the
Department of Children and Families’ Division of Child Protection and Permanency
(DCPP), the Department of Human Services’ Department of Developmental Disabilities
(DDD), the Department of Corrections’ Residential Community Release Program (RCRP),
and the Department of Community Affairs-Administration of Hurricane Sandy recovery
efforts. Lastly, Part 4 provides detailed recommendations designed to specically for New
Jersey but which we hope will serve as best practices that can be applied to other states.
part i: Why is Oversight Important?
Oversight is a critical component of the contracting process for several reasons:
Protecting the public’s investment
The state has a duciary responsibility to manage tax dollars and protect precious public
assets such as forests, parks, beaches, rivers, roads, and bridges for future generations.
Short-term thinking focused on income maximization can lead to disinvestment and
neglect. When the state contracts out a service, it is still taxpayer money that is going to
pay private contractors and the duty to protect the public’s investment remains with the
state. It is the responsibility of government to ensure that those who are most
knowledgeable about the service being performed are involved in oversight so as to do the
best job of stewarding our resources.
Ensuring a high quality of service
The state has a responsibility to ensure the quality of service provided. Whether
government provides services directly or does so through a contractor, citizens expect their
government to ensure the highest quality services for our communities.
Protecting vulnerable members of our society
The state has a duty to protect vulnerable members of society. We as a society have made a
decision to utilize government to collectively care for our developmentally disabled, our
elderly, and our children in crisis, our indigent ill, those in the criminal justice system
when they are deprived of their freedom, and those struggling with addiction. These
people cannot protect themselves. When private entities are entrusted with caring for
12 Executive Order 8 was issued by the Christie Administration to improve transparency and increase the use of performance measures in government contracts. It is
discussed in more detail below.
OVERLOOKING OVERSIGHT 13
vulnerable populations, government is expected to ensure that they are carefully looking
after those in its care.
Ensuring public health and safety
The state is obligated to ensure public health and safety. Everyone in society depends on
government to ensure that we drink clean water, breathe clean air, and safely travel over
roads and bridges. When we entrust private entities with these activities we are literally
putting our lives in their hands. Careful oversight of government contractors is critical to
community wellbeing.
Catching mistakes in real time
Finally, a central challenge is ensuring that the state fulll these obligations in a timely
way. State and local governments often identify and expose abuses after they happen and
the damage has been done. Mechanisms that ensure effective ongoing monitoring are
necessary so that problems can be identied and dealt with before people are harmed or
state assets are destroyed, depleted or misspent.
In the supply chain literature, there is growing understanding about the danger of shifting
too much responsibility to outside actors: “Businesses face signicant risks if outsourced
functions interact with decisions central to core competency or require nuanced
understandings of customers, markets, or other external factors,” David Weil cautions. He
goes on: “For example, companies have found that shifting major human resource and IT
functions can backre if it impinges upon the development of key staff positions in the
case of personnel…The problem is intensied if business functions are hard to bring back
in-house once outsourced.”13 Like supply chain management in the private sector,
oversight is only as strong as the government’s capacity to undertake it — in other words,
there have to be adequate numbers of people in government charged with doing it and the
people who carry it out on the ground day in and day out must possess signicant skill,
experience and area-specic expertise. Also, once allowed to atrophy through attrition and
lay-offs of skilled and experienced managers, this capacity is difcult to regain.
part ii: Findings from a Review of Contractor Oversight in New Jersey
Our interviews with state workers and analysis of the New Jersey documents described
above reveal several common problems related to government oversight of private
contractors. In particular, we found problems in contracts and the process by which the
state creates the contracts, a critical issue given that the contract denes both the
contractor’s obligations and the remedies available to the state in the event of a violation.
We also found problems in contract management, the process by which the state ensures
contractors are doing what the contract requires of them. At the heart of both of these
problems is an overarching problem: a lack of institutional prioritization of oversight as
evidenced by a severe lack of systemic oversight capacity. While these ndings are based
on state-specic evidence, many of these problems are endemic to poor government
oversight and it is probable that New Jersey’s experience is not unique to our state.
13 Weil, The Fissured Workplace, 58.
OVERLOOKING OVERSIGHT 14
Problems with Contracts and the Process by Which They
are Created
Oversight costs are not incorporated into contracts or the decision to contract
Oversight requires that adequate funding be provided for government personnel to
monitor performance. Yet, states’ experiences have shown that contracting managers
typically do not allocate sufcient levels of nancial support to perform administrative
and oversight duties.14 Establishing a process to estimate costs, including the costs of
oversight and performing a cost-benet or cost-effectiveness analysis, improves
government decision-making regarding contracting out. However, government agencies
tend to underestimate or exclude indirect and overhead costs associated with additional
internal capacity to monitor, manage and oversee contracts.15 Researchers suggest that
these hidden monitoring and transaction costs are approximately 20% of the total contract
cost.16 The additional administrative costs associated with contracting out, in particular the
cost of oversight, routinely fail to be incorporated into the contracting-out decision.17
Contract administration costs tend to be difcult to calculate since they include costs
associated with contract negotiations, contract amendments and contract oversight.18 It is
critical for states to fully understand how these additional costs offset or completely
reduce any projected savings or efciency gains promised by contracting out.19
In New Jersey, we found that the state failed to perform routine contract costing and/or
included minimal specication of contract terms prior to the issuance of RFP’s. This leaves
the foundation upon which oversight might be built extremely weak. In most cases the
bidding process locks in place the costs and requirements associated with contracting for a
service. Thus, any RFP that is based on a poor (or non-existent) estimate of the costs and
lacks thorough, clearly dened contract terms will make it extremely difcult to ensure
that services are being delivered well and cost-effectively.
The decision of when to contract and when not to do so is fundamental and must be made
with great care and deliberation. Yet, every ofcial we interviewed conrmed that to their
knowledge costing was not done in any systematic way. We found two concrete example
of an agency comparing the costs of keeping a service in-house with the costs of
contracting for it for the purpose of making a decision. The rst was the Department of
Corrections (DOC) in assessing how to best provide education services to inmates. The
second was the Department of Transportation (DOT), which compared the cost of
replacing highway lighting in-house against the cost of contracting for it. In both cases,
however, costing was not done as thoroughly as best practices might suggest, in particular
ignoring the cost of oversight in the calculation of the cost of contracting.
14 Hodge, Graeme. “Contracting Public Sector Services: A Meta-Analytic Perspective of the International Evidence.” Australian Journal of Public Administration 57, no. 4
(1998): 98-110.
15 Young, Richard D. On Cost Analysis Comparisons: Government In-house Provision vs. Contracting Out. USC, Institute for Public Service and Policy Research, 2005.
16 See Sclar, Elliott D. You don’t always get what you pay for: The economics of privatization. Cornell University Press, 2001; Marvel, Mary K., and Howard P. Marvel.
“Outsourcing Oversight: A Comparison of Monitoring for In-House and Contracted Services.” Public Administration Review 67, no. 3 (2007): 521-530; Pack, Janet
Rothenberg. “Privatization and cost reduction.” Policy Sciences 22, no. 1 (1989): 1-25.
17 Durant, Robert F., Amanda M. Girth, and Jocelyn M. Johnston. “American exceptionalism, human resource management, and the contract state.” Review of Public
Personnel Administration 29, no. 3 (2009): 207-229.
18 Young, On Cost Analysis Comparisons, 2005.
19 Carr, Jered B., Kelly LeRoux, and Manoj Shrestha. “Institutional ties, transaction costs, and external service production.” Urban Affairs Review 44, no. 3 (2009): 403-427.
OVERLOOKING OVERSIGHT 15
Very few ofcials were aware of the possibility of internalizing oversight costs into
contracts. It did not appear to be a consideration for many contracting units. Not a single
contract we reviewed included oversight cost recovery terms. The only explicit indication
of a cost of oversight being built into an RFP was in the Department of Human Services
(DHS) and it was fairly limited. DHS vendors are required to include the $30,000-$80,000
costs of CPA audits as line items in their budgets. However, CPA audits cover only the
nancial integrity of the vendors, not the specic contracts, nor the vendors’ performance
under them. This audit cost is only one small element of the overall cost of oversight.
Our analysis of RFP’s shows similar ndings. Most RFP’s only require the bidder to
provide program related costs such as the number of staff required or the number of beds,
which leads us to conclude that the contracting out decision-making process lacks a robust
cost comparison methodology. Few if any of the RFP’s analyzed required bidders to
include the proportion of overhead and administrative costs associated with providing the
service. Therefore, contracting units are comparing their internal costs with an
underspecied cost from a contractor. In the context of our RFP analysis this also means
that costs such as management information systems and data collection systems associated
with delivering the services are not routinely itemized or proportioned per contract,
thereby limiting the effectiveness of making a cost comparison. Moreover, requests for the
cost of tasks associated with monitoring and oversight of a specic contract were notably
absent from the RFP’s we reviewed. The proportion of administrative and overhead costs
is necessary to ensure an accurate cost comparison between in house service delivery and
contracting out. Additionally, once the contract is let, the RFP becomes one of the
documents governing the contractual relationship, and therefore makes the RFP a critical
document that should require and contain enough detail to be useful as a contract. The
bottom-line is that contracting units are making the decision to contract out without
having a complete picture of all the costs associated with contracting out the service.
Contracts do not contain adequate performance requirements and standards
Another challenge to performing oversight involves how contractor performance is
measured. Research nds that states are struggling to develop strategies for gauging
service outcomes or program effects. Developing sound and reliable performance
indicators is an extremely difcult task because in truth, many of the most important
outcomes cannot be quantitatively measured—instead what is required is the presence of
knowledgeable, experienced individuals who remain close to the action, regularly in touch
with all parties and can use all of their capacities to evaluate performance.
While it may be appropriate to consult contractors in determining which performance
indicators will be used, ultimate responsibility and authority must reside with the state.
Once government separates itself from its oversight and monitoring functions, state
capacity continues to erode, and it becomes increasingly difcult to ensure transparency
and accountability to the state.
Several best practice measurement and monitoring tools are available for contracting units
to ensure quality service outcomes. For example, contracting units can employ onsite spot
checks, unannounced site visits, and regular progress reports as routine built-in contract
OVERLOOKING OVERSIGHT 16
monitoring and oversight tools.20 Specic measurement criteria, understood by the
contracting unit and communicated to the contractor are key for effective contract
oversight. As a best practice, contracting units should clearly detail performance measures
and specications as early as the RFP process.21 By dening precise contract monitoring
requirements in advance, contracting units communicate their goals, needs and
requirements to potential vendors.22 This requires contracting units, especially contracting
units delivering complex human services, to invest in developing and communicating
explicit standards to bidders.23 The specicities of the contract and effective contract
oversight are closely linked; therefore as a best practice, contracting units must pay
careful attention to articulating the outcome they want to achieve during the contract
specication process.24
Best practices research urges contracting units to specify as early on as the RFP what is
being monitored and how this will be done. The New Jersey contracts we reviewed lacked
detailed and meaningful performance requirements and standards. Only a minority of
contracts had outcome-based performance measures and there was little evidence of
performance targets being integrated into a comprehensive oversight system. Only the
Department of Mental Health Services (DMHS) had clear, outcome-based performance
measures in contracts combined with a comprehensive system of oversight. Additionally,
very few contracts required specic data collection and reporting, outcomes-based
benchmarks with clear performance measures and milestones tied to payment despite
these being widely accepted best practices. Similarly, very few contracts had automatic
sunset provisions and requirements that contractors would have to reapply in a
competitive bidding process or specic evaluation procedures in cases when, given the
specialized nature of the service or facilities being provided, they were not going to be
competing against others for a contract.
Best practices suggest that contractors failing to deliver on performance standards should
be subject to escalating sanctions and penalties. Sanctions and penalties typically entail a
combination of fees or costs borne by the contractor or in severe cases cancellation of the
contract.25 A review of RFP’s found that termination of the contract for cause was the
typical sanctioning tool. This may be due to the complex nature of social service provision
and the difculty of evaluating outcomes and monetizing potential losses. The criteria for
these sanctioning efforts should be based on the information gathered from monitoring
and oversight of service inputs, outputs and outcomes, consistent with specic standards
and measures previously developed and communicated to the contractor.26 In general, we
found neither the capacity to identify whether any outcome targets were being met nor the
appetite to take action when they weren’t.
20 Amirkhanyan, Anna A. “Collaborative performance measurement: Examining and explaining the prevalence of collaboration in state and local government contracts.”
Journal of Public Administration Research and Theory 19, no. 3 (2009): 523-554.
21 Chen, Yu-Che, and James Perry. “Outsourcing for e-government: Managing for success.” Public Performance & Management Review (2003): 404-421.
22 Lamothe, Scott, Meeyoung Lamothe, and Richard C. Feiock. “Examining local government service delivery arrangements over time.” Urban Affairs Review 44, no. 1
(2008): 27-56.
23 Weil, The Fissured Workplace
24 Warner, Mildred E., Mike Ballard, and Amir Hefetz. “Contracting back in: when privatization fails.” The Municipal Year Book (2003): 30-6.
25 Weil, The Fissured Workplace
26 Lambright, Kristina Trent. “Getting What You Ask For: Barriers to Proper Use of Service Monitoring Tools.” The American Review of Public Administration 38, no. 3 (2008):
362-379.
OVERLOOKING OVERSIGHT 17
In our analysis of RFP’s, only four cases (see Table 1, p. 37) identied that the contracting
unit would monitor and oversee service provision, via a formal monitoring system
that was specied to some degree in the RFP. This is problematic for contractors
because the majority of contracts we reviewed did not convey the information necessary
for contractors to effectively perform their duties and how those duties would be
evaluated/monitored.
Additionally, every RFP reviewed called for a pre-award or bidders’ conference to discuss
the particulars of the service being required. Yet, analysis of the RFP’s presents little
evidence to suggest that contracting units and vendors engage in any robust collaborative
processes to jointly develop contract performance measurement and monitoring systems.
For example, 14 out of 17 RFP’s analyzed did not require or identify whether the
contracting unit worked with or collaboratively developed service procedures and
protocols, even though case study research suggests a collaborative approach to contract
monitoring and oversight is more likely to yield successful outcomes.27 This is the case
because it allows for exibility in determining contract specications and may reveal
specic performance standards and service delivery requirements that may be beyond the
scope of the contractor.
New Jersey has attempted to ll this gap in a couple of ways. Executive Order 8 is an
attempt to create systems that can improve oversight across the board. It requires the
Treasury to implement performance-based budgeting, which should require contracting
units to obtain performance data and incentivizing the inclusion of performance
benchmarks in all contracts. Meanwhile, the publication of data on a free website should
increase accountability. However, while performance-budgeting reports are available for
22 Departments, they collect and provide only aggregate information on the quantity of
services provided, and no information on the outcomes for those served or the
performance under individual contracts.
Problems in Contract Management
Decline in the number of experienced contract managers and inadequate training and
qualication of remaining contract managers
A crucial step in ensuring effective contract monitoring and oversight is developing and
maintaining the scal and human resource capacity necessary to implement and execute
oversight. The contracting process requires implementation and interpretation of costing
methods, contract management, management of third parties and effective communication
practices. Effective supervision of these core elements requires that contracting units
maintain strong management capacity.28
In New Jersey, we found that there has been attrition at the level of experienced state
workers who could function as contract managers and those who are acting as contract
managers are not always qualied or properly trained to fulll their roles effectively.
27 Brown, Trevor L., and Matthew Potoski. “Transaction costs and contracting: The practitioner perspective.” Public Performance & Management Review 28, no. 3 (2005):
326-351.
28 Brown, Trevor, and Matt Potoski. “Contracting for management: Assessing management capacity under alternative service delivery arrangements.” Journal of Policy
Analysis and Management 25, no. 2 (2006): 323-346.
OVERLOOKING OVERSIGHT 18
According to ofcials from every department studied, individuals who are designated
contract managers often cannot provide effective oversight. An ideal contract manager
must have an extremely high level of skill, experience and sophistication in dealing with
private contractors. Unfortunately, many current contract managers are assigned this role
by default and do not possess the necessary skills and training. Ofcials from every
contracting unit studied echoed the sentiment from a DHS ofcial that agencies “work
with what [they] have.” With the exception of DOT, which has created its own internal
training program, the only training most of these default contract managers receive is a
three hour online tutorial. Other contract managers told us that they had repeatedly
requested contract management training and never been provided it.
In addition, the skill set needed to manage and oversee in-house service provision can be
quite different from the skills required to oversee contractor performance.29 The shift in
service delivery from the state, to a private contracting organization, is a transition that
state personnel may not be prepared for30 as it requires that they now manage outside
vendors and contractors rather than follow procedure. This shift requires that contract
monitoring personnel be [re]trained to address their new responsibilities. Budgeting
ofcials must recognize this need, and as a best practice, allocate sufcient resources to [re]
train procurement personnel to effectively monitor service outcomes regardless of the type
of delivery. In short, contracting units require an infusion of budgetary resources to train
employees and develop oversight capacity rather than reductions.
Most of the RFP’s we reviewed only include a cursory mention of overall staff training and
they are mute on the specics of contract monitoring staff. This silence hinders the
contracting unit’s ability to assess whether or not bidders can effectively oversee and
monitor the services provided.
Insufcient On-the-Ground Oversight Capacity
In addition to having well-trained contract management personnel, a state must also have
enough staff to adequately oversee contractors. Unfortunately, our examination of stafng
levels in New Jersey agencies shows that capacity of contractor oversight has been
signicantly reduced. Attrition is a predominant problem, depriving every contracting
unit we studied of practical expertise while simultaneously increasing the burdens on
those workers that remain.
The most prevalent theme that came through in the interviews we conducted is that
attrition of contract management staff has signicantly hampered the capacity of
contractor oversight. This information was corroborated by our broader analysis.
Examples from the Ofce of Information Services (OIS) and the Ofce of Auditing (OOA)
within DHS and DDD are illustrative. OIS is responsible for many of the largest and most
critical contracting projects in the state. There are two current large and vital projects
currently underway. The rst is the Consolidated Alliance Support System (CASS), a data
management system used to consolidate data from welfare, Medicaid, child care, and food
29 Lamothe, “Examining local government service delivery,” 29
30 Romzek, Barbara S., and Jocelyn M. Johnston. “Effective contract implementation and management: A preliminary model.” Journal of Public Administration Research and
Theory 12, no. 3 (2002): 423-453.
OVERLOOKING OVERSIGHT 19
stamps and integrate these across agencies. The second is a digital imaging system
designed to digitize paper documents and ultimately integrate them with CASS. Such
projects are relatively new, as federal data management requirements rise and technology
advances to make more sophisticated systems possible. They require enormous manpower
and are conducted on top of the ordinary, ongoing responsibilities of OIS. Nevertheless,
OIS’s workforce has dropped from 82 in 2003 to 54 in 2012. A 2011 request by
administrators for an increase of 28 workers to handle the additional work of CASS was
denied. OOA is suffering from a similar problem. The Ofce of Auditing is responsible for
ensuring adherence to contract requirements of the over 400 vendors hired by DHS, most
of which provide services to DHS clients (e.g., the disabled, mental health patients, family
development and welfare recipients). More specically, OOA conducts full contract audits,
desk reviews (i.e., review of nancial audit) of all 400+ vendors’ contractually required
CPA audits (obtained and paid for by the vendor); and risk reports. All this work is being
done by 30 staff. 12 years ago, there were 60.
The result of the decline in stafng in OOA is a concurrent decline in the number of audits
conducted. There used to be roughly 150 full contract audits annually. Now only about 125
audits are conducted a year, split 50/50 between full contract audits and consulting
reviews. This is problematic because full contract audits are thorough rather than
perfunctory, and the only ones that cover any programmatic checks (e.g. number of clients
served, number of beds provided etc.). Consulting reviews are lower-level audits looking
at particular issues agreed between OOA and the agency. In other words, the most
thorough audits have been reduced by almost 60%. Furthermore, the more than 400 annual
desk reviews are conducted by only 1.5 DHS staff members.
The Department of Developmental Disabilities’ (DDD) contract managers have suffered a
similar fate. The contract managers for the scal side of the DDD play an essential role in
oversight because, unlike the program side of DDD, these managers know how much each
residential facility receives to operate and they have the ability to stop payments.
Knowledge of a facility’s budget means that their site visits can be especially important
because their inspections can be particularly thorough--for example, they can tell when
they walk into a house and inspect refrigerators and pantries whether funding is being
appropriately channeled. But these site visits are taking place less frequently. Managers
spoke candidly: “They don’t get out nearly as often because we are buried in paper.”
While a decade ago they had 12-15 contract managers, they are now down to eight people
with one supervisor responsible for overseeing all contracts at DDD.
An Oversight of Oversight:
Systematic oversight is not a priority across agencies
Our analysis of New Jersey oversight policies and practices suggest that there are
signicant structural deciencies in the state’s overall approach to oversight. First, many of
the most signicant oversight decisions and processes are subject to few if any formal
rules. The burden falls to the individuals within contracting units to ensure that
contractors are performing honestly and delivering services well and cost-effectively.
OVERLOOKING OVERSIGHT 20
There are two structural issues in particular that contribute to this dynamic. Even though
the Department of Public Purchasing (DPP) has primary responsibility for procurement in
New Jersey, it only regulates and enforces one part of the contracting process: bidding.
Despite a few regulations designed to protect the state from poor performance,
development of RFP terms and the actual oversight responsibility is left almost entirely to
the contracting units themselves. Furthermore, for services provided directly to New
Jersey’s citizens, contracts are entirely exempt from DPP oversight, including bidding
requirements. This leaves the governance of the contracting process for these critical
services to the discretion of understaffed Departments. Individual Departments like DHS,
DCF and DEP can issue their own regulations to govern the contracting process. Some do.
Some do not. But in all cases, the regulations fail to provide the necessary requisites to
ensure that RFP terms protect the state, taxpayers and clients receiving the services. They
also fail to ensure sufcient resources for performance management. It is worth
mentioning that the independent Ofce of the State Comptroller (OSC) and the legislative
Ofce of the State Auditor (OSA) both have authority to review decisions and audit
processes. Their role, however, is limited by resources and regulations to post-hoc
retroactive analyses of only a small group of contractors.
Second, there are no institutionalized mechanisms to ensure that sufcient resources exist
for the individuals responsible for the majority of oversight to do the job well. In fact,
departmental decision-makers may be facing strong incentives to cut oversight while
maintaining or increasing contracted services, leading to the lack of qualied contract
managers and quality systems. Much of this derives from a budget process that prioritizes
service delivery over administration, which includes oversight resources. Not only is it
more difcult to get funding for oversight at the outset; oversight also belongs to a class of
expenditures most likely to be cut when cuts are necessary.
Finally, there does not appear to be any agency within the state with the capacity or
competence to conduct analyses across agencies, looking at the overall efciency or
effectiveness of resources allocated to contractors. The OSC and the OMB are prime
candidates, with relevant competencies, but neither currently has a mandate or the
resources to do so.
Together, these deciencies reect the lack of priority given to oversight, which is all
the more troubling given the signicant amount of contracting going on. This lack of
priority has predictable results for oversight in practice, as seen in the case studies in
the next section.
OVERLOOKING OVERSIGHT 21
part iii: Case Studies: Examples of Failed Oversight and
Their Consequences
Four cases highlight how oversight failures manifest themselves in practice and
what the consequences are for taxpayers and the services the respective agencies
are meant to deliver. The rst case is DCF’s Division of Child Protection and
Permanency (DCPP), where a lack of contract monitoring systems makes it
difcult to hold service providers who provide poor quality services accountable.
The case remains somewhat general, as DCF would not cooperate with our
requests for information, but the broad point remains. The second is the DHS’s
Department of Developmental Disabilities, where poor oversight has led to
substantial waste of taxpayer money with little assurance that services for which
the state has contracted are being provided, let alone provided well. The third case
is DOC’s Residential Community Release Program (RCRP) which has recently
been the subject of a great deal of publicity for oversight failures that have had
tragic consequences. The fourth and most recent case is DCA’s Reconstruction,
Rehabilitation, Elevation and Mitigation RREM program, which was implemented
to assist in Hurricane Sandy recovery efforts. In all four cases, contractors are used
to provide services to particularly vulnerable or high-risk clients. In all four cases,
at least one of the key phases of the contract oversight process has failed to ensure
that clients are well provided for, that taxpayer’s are getting good value for their
investments, and that citizens are protected from danger.
Case study 1 —
Department of Children and Families: Division of Child
Protection and Permanency
The Department of Child Protection and Permanency (DCPP), formerly the
Division of Youth and Family Services, provides a good example of the challenges
posed by a lack of a designated point person responsible for monitoring contracts
and for contract monitoring systems. DCPP is charged primarily with protecting
children from abuse and neglect. DCPP provides services to families designed to
reduce the risks of abuse and neglect, services to children to help them cope with
the consequences of abuse, and services to both children and their parents
designed to rehabilitate families that have been disrupted by abuse and/or
neglect. In most cases, these services involve therapy and/or education programs
provided directly to family members. In some cases, residential treatment
programs are required. The vast majority of these services are provided by for-
prot and not-for-prot contractors, at a cost of hundreds of millions of dollars a
year. DCF intervenes in the lives of an estimated 100,000 children each year.
Most contractors operate on fee for service (FFS) contracts that render them
eligible to provide services to DCPP clients provided they meet and continue to
meet certain conditions. For example, therapy providers and psychological
evaluators must maintain minimum licensing requirements within their elds.
OVERLOOKING OVERSIGHT 22
This creates a pool of providers who should all be qualied to provide necessary
services to DCPP’s clients. While the pool is generated by a contracting unit within
DCF, contractors are matched with clients by state-employed social workers that
serve as case managers for a given number of clients. When a family or family
member on a caseworker’s caseload needs a service, the caseworker chooses a
contractor from a list of those in the pool that are contractually eligible to provide
that particular service. The list generally contains the names of groups, such as
psychologists’ practices, rather than the names of all individuals employed by the
group. Once the service is provided, the contractor submits an invoice to the
caseworker, who, along with his or her supervisor, signs off on the invoice, before
submitting it for payment.
Under this system, the caseworker is the primary state employee in a position to
assess the quality of the services being provided to the client. Unfortunately,
caseworkers are not informed of the terms of provider’s contracts or any
individuals who might be precluded from providing services under contract for a
particular reason. Because of this lack of communication, it is possible that work
could be subcontracted to someone who has a record of endangering children or
has even lost their license because the state does not follow up with its
subcontractors adequately. For example, if John Smith Medical Group employed
Bob Johnson, who for licensing or other reasons is not permitted to provide
therapy to children for DCPP, a caseworker who needed child therapy for a client
and chose John Smith Medical Group would be the only individual in a position to
know if Bob Johnson was providing the service in violation of the contract but
would not know that the use of Bob Johnson was a violation. Nor is there any
institutionalized mechanism for caseworkers to communicate to the contracting
unit any quality issues they see with particular providers. Because there are
dozens of caseworkers in each local ofce and contractors generally serve multiple
local ofces, a contractor can provide poor services to dozens of clients with no
repercussions. Thus, psychologists who routinely provide poor reports and
therapists whose services are routinely ineffectual continue getting paid taxpayer
money to provide services even though many caseworkers are aware of the poor
quality of their work.
This issue is compounded by time pressures of litigation, which is common in
child protective services and often compels caseworkers to choose the available
provider rather than the best provider. As long as they remain on the list,
contractors continue to be used. Because there is no institutionalized means for the
state to hold poorly performing contractors accountable, they are likely to remain
on the list, providing services that impact children, families and taxpayers. The
solution to this may be fairly simple: a database in which caseworkers can see a
“no-y-list” and can enter complaints about providers which can then be
referenced by the contracting units and a point person who will keep track of such
reports and function as the agency’s institutional memory with regard to
contractors.
Please note, DCF refused requests to interview people for this study.
OVERLOOKING OVERSIGHT 23
CASE STUDY 2 -
Department of Human Services:
Department of Developmental Disabilities
The Department of Developmental Disabilities (DDD) provides a more dramatic picture of
oversight problems that have resulted in substantial waste of taxpayer dollars and little
information about the quality of services provided. DDD provides services to individuals
with legally dened “developmental disabilities.” These include, among other disabilities,
mental retardation, autism, cerebral palsy, epilepsy and spinal bida. DDD serves over
35,000 of New Jersey’s most vulnerable citizens with residential treatment programs,
training, medical services, therapy and more. These services are funded by DDD at a cost
of nearly a billion dollars and generally provided by for-prot and not-for-prot
contractors. Like those in DCPP, DDD employs case managers to coordinate services for its
thousands of clients while the contracts themselves are supposed to be monitored by
contract administrators.
In 2009, OSC audited DDD’s oversight of these third-party contracts.31 The Comptroller
found that “DDD does not adequately oversee the third-party contracts it awards. As a
result, taxpayer dollars are not being spent efciently and providers may not be delivering
all services as required by the operative contract.”32 OSC found the following general
weakness in DDD’s oversight:
• Contracts were renewed without a competitive process and with little review of
past performance
• Contract modications were granted with little review of the merits of the request
• Most contracts were either fee-for-service (FFS) or general service (GS) contracts
which, when combined with other oversight failures, led to payment for services
that were not being provided.
• DDD’s system of contract monitoring was not designed to uncover inappropriate
or unreasonable expenditures.
• DDD’s system of contract monitoring was also not designed to ensure that services
were being delivered as prescribed.33
These specic failures have resulted in both inefcient expenditures and poor information
about the quality of services being provided. The contracting process is hampered by
limited review of renewals and modications and by the lack of performance-based
payment structures. In 2008 alone, 95 contracts worth over $2 million each, including 23
worth over $10 million each, were renewed without competitive bidding and with limited
review of past performance due to the absence of procedures and systems to collect,
compile and maintain data on past performance. According to OSC, “if a provider is not
identied as having had any signicant problems in its delivery of services within the
scal year, the contract is routinely renewed without DDD undertaking any deliberative
process that considers scal and program performance.”34
31 State of New Jersey Office of the State Comptroller, Department of Human Services, Division of Developmental Disabilities. A Performance Audit of Oversight of
Third-Party Contracts, 2009, PA-05, Trenton, New Jersey.
32 Ibid., p.6
33 Ibid.
34 Ibid., p. 19, emphasis added
OVERLOOKING OVERSIGHT 24
Similarly, contract modications are approved throughout the year with limited review.
OSC reviewed a sample of 10 contractors and found that modications increasing
payments by over $21 million were approved with little review of the merits of the
modication. DDD did not obtain documentation from its contractors, so it had no way of
knowing if a request for new equipment, such as vehicles, was appropriate or necessary.
While DDD did implement an electronic modication tracking system, OSC suggested that
the system would not provide assurance that requests were appropriate.35
The lack of performance-based payment structures compounds the problem, leading the
state to pay for more individuals than actually received services. In 2008, DDD had 174 GS
contracts and 106 FFS contracts. OSC found that the GS contracts did “not appear to be in
the best interests of the state” because contractors were paid for the contracted amount of
individuals serviced even though they did not actually service that many.36 As a result, in
2008 taxpayers paid for service provision for 405 individuals even though only 323 were
served, for an excess cost of $1.4 million. Furthermore, some contractors did not even have
the capacity to serve the number of individuals required by their contract. DDD indicated
to OSC during the audit that it intended to switch contracts for all future providers to FFS.
OSC expressed concern. While FFS contracting does ensure that contractors are paid only
for the number of individuals served — subject to a monitoring system that can verify the
accuracy of invoices — FFS continues paying regardless of outcomes. In effect, ineffectual
or poor quality services are reimbursed at the same rate as effective services. OSC
recommended the use of a Milestone Payment System (MPS) that would pay contractors
for the results of their efforts.37
Fiscal performance in existing contracts was also poorly monitored. For example, in 2008,
DDD did not review contractors’ expenditure reports thoroughly enough to identify
$160,000 of inappropriate expenditures by one provider that included Mediterranean and
Caribbean cruises and trips to Nashville and Florida. DDD simply did not analyze specic
expenditures for any providers. While the DHS Contract Policy and Information Manual
(CPIM) doesn’t require such specic analysis, it does require on site reviews to be
performed by contract administrators. This was not done. Instead, case managers were the
de facto on site reviewers and, as in DCPP, communication between these social workers
and the people with contract expertise was minimal. The result was very little scrutiny of
expenditures. Just as problematic, DDD was up to three years behind in closing out
contracts, a process designed to identify recoverable funds by the end of each scal year. As
a result, up to $15 million in over-payments to contractors had not been recovered. Finally,
DDD also failed to follow up on legally required independent audits, with a signicant
number of contractors sampled having failed to provide any audit reports. DDD also
experienced low oversight stafng capacity during this period. In 2008 fourteen contract
administrators were responsible for nearly 280 contracts worth well over $800 million.38
35 Ibid., p. 20
36 Ibid., 21.
37 Ibid., 22.
38 Ibid., 3.
OVERLOOKING OVERSIGHT 25
Monitoring of program performance was equally poor. DDD case managers monitor the
individuals who are receiving services through the agency. They are required to conduct
either monthly or quarterly in-person visits with clients, depending on the clients’
circumstances, and to generate specic reports for each visit. Given the role of case
managers as the primary advocates for highly vulnerable people, these reports contain
critical information. However, OSC found that a sample of case managers regularly did
not fully complete required reports or did not sign off on supplementary forms such as
medical records. OSC reviewed over 1200 reports and identied well over one-third as
incomplete or copied verbatim from prior reports. As with scal oversight, lack of capacity
may be a signicant factor: case managers had caseloads as high as 500 individuals
whereas national standards are 50 or fewer.39 The OSC has made several recommendations
to DDD aimed at improving contract oversight and monitoring. The recommendations
include establishing procedures to ensure that provider expenditures and reports are
complete and supported by relevant documentation, and implementing systems to ensure
competitive procurement of third party contracts.40 A follow up OSC report suggested that
even though DDD was moving in the right direction, signicant work remains to be done
regarding developing procedures to ensure provider compliance with contract
requirements,41 in particular, ensuring that case managers complete accurate site visit
reports.42
Case study 3 —
Department of Corrections (DOC):
Residential Community Release Program
DOC Ofce of Community Program’s halfway houses, formally called Residential
Community Release Programs (RCRPs), present perhaps the most egregious example of
the dire consequences that can result from a lack of oversight of contractors: poor oversight
contributed not merely to substantial waste of money, but also to several violent deaths. In
2010, David Goodell, escaped from an RCRP in Newark and killed a young woman in
Newark who had spurned him. The same year, Rafael Miranda escaped from another
RCRP and shot a man in Newark on the sidewalk after 4 months at large. He was three
miles from the RCRP. The year before, Valerie Parziale escaped from an RCRP in Trenton
and slashed a man’s ear in a liquor store. Prosecutors had no idea she was a fugitive.43 And
in 2009, Derek West Harris was killed at an RCRP by gang members looking for $20 when
he only had three. Mr. Harris was in the RCRP awaiting a hearing after his arrest for
driving an unregistered vehicle.44
OCP is the ofce within DOC charged with preparing criminal offenders to re-enter society
productively and reduce their risk of recidivism. Towards that end, OCP contracts with
not-for-prot companies to provide RCRP services to inmates who meet certain criteria.
39 Ibid., 15.
40 State of New Jersey Office of the State Comptroller, A Performance Audit of Oversight of Third-Party Contracts
41 State of New Jersey Office of the State Comptroller, Department of Human Services, Division of Developmental Disabilities. Follow-up Report on Oversight of Third-Party
Contracts, 2011, F-05, Trenton, New Jersey.
42 State of New Jersey Office of the State Comptroller, Follow-up Report on Oversight of Third-Party Contracts, 5
43 Dolnick, Sam, “At a Halfway House, Bedlam Reigns,” New York Times, June 17, 2012, US Edition, New York Region
44 Dolnick, “At a Halfway House, Bedlam Reigns,” 2012
OVERLOOKING OVERSIGHT 26
RCRPs are basically lower security facilities that increase the freedom of inmates to allow
them to gradually acclimate and build the skills and job prospects necessary to ease their
transition back to society. They are staffed by counselors who make roughly $11 hourly, do
not carry weapons and are not permitted to use force to restrain residents. RCRPs are a fast
growing segment of the criminal justice system in New Jersey and were home to over 2,700
people by 2011.45
Given the goals of RCRPs, eligible inmates are essentially required to be relatively low risk
to public safety and close to getting out of connement.46 Facilities are supposed to provide
for different target populations so that, for example, violent offenders are not placed with
non-violent offenders. Prospective residents are funneled through two not-for-prot
assessment centers charged with identifying proper placements. OCP is primarily
responsible for overseeing RCRP contracts which were worth over $64 million in Fiscal
Year (FY) 2011. It had 18 employees charged with developing and overseeing RCRP
contracts and tracking inmate movement as of FY 2010.47
In 2011, OSC conducted an audit “to determine the effectiveness of DOC’s oversight of the
contracts it awards to RCRPs.”48 In addition to review documentation and interviewing
DOC personnel, OSC examined six RCRPs run by 5 contractors. OSC found (1) that DOC
did not adequately monitor RCRP providers, (2) that it overpaid them by almost $600,000
over the nearly three-year span covered by the audit, (3) that it did not enforce provisions
designed to ensure key practices, especially those for public and RCRP resident safety, (4)
its process for disciplining RCRP residents was awed, and contract decisions were made
with limited information, making it difcult to know what the state was getting for its
$60+ million.
On top of OSC’s ndings, the New York Times (NYT) investigated the facilities in 2012,
and found that escapees were not properly reported to authorities and were not prioritized
by authorities.49 DOC also failed to ensure that eligibility requirements were met for RCRP
residents: violent offenders and individuals with relatively low bail were being placed
together in RCRPs.50
While all of the aws in oversight created the environment that allowed the tragic deaths
highlighted by the NYT to occur, three of these aws directly contributed to the outcomes:
1) failure to enforce escapee provisions, report escapees and pursue them, 2) failure to
ensure proper disciplinary procedures followed, and 3) failure to review the assessment
centers and monitor compliance with eligibility requirements. Lackluster oversight of basic
regulations within the prisons also contributed in at least one case. While these measures
would not have absolutely assured that these tragic events would not have taken place,
failure to honor the limited requirements of contract provisions may be blamed for
creating an environment in which bad things were more likely to happen.
45 See Dolnick, “At a Halfway House, Bedlam Reigns,” 2012; State of New Jersey Office of the State Comptroller, Department of Corrections, Office of Community
Programs. Residential Community Release Program, 2011, PA-13, Trenton, New Jersey.
46 State of New Jersey Office of the State Comptroller, Residential Community Release Program, 1
47 State of New Jersey Office of the State Comptroller, Residential Community Release Program, 2
48 Ibid., p. 3
49 Dolnick, “At a Halfway House, Bedlam Reigns,” 2012
50 Ibid
OVERLOOKING OVERSIGHT 27
Escape prevention was a precondition of the law that allowed the creation of the RCRPs in
the rst place. New Jersey laws require that the DOC Commissioner must certify annually
that each RCRP is secure and appropriately supervised, reecting “concern for security
when entrusting inmate rehabilitative programs to private nonprot groups” and “because
of frequent expressions of concern about escapes from work-release-type programs.”51
That poor enforcement of escapee provisions directly contributed to the two murders and
the assault is all the more disturbing. All three crimes were committed by individuals who
escaped and were not searched for by agency ofcials thoroughly or quickly. The
murderers were more violent than was appropriate for RCRPs. David Goodell was in jail
for assault. Rafael Miranda was in on weapons charges.52
Meanwhile, Derek Harris was a victim of DOC’s failure to ensure that the facilities only
accepted eligible inmates and properly oversaw that disciplinary procedures were
followed. Mr. Harris was awaiting a hearing for trafc violations and was therefore not
eligible to be in an RCRP in the rst place. His killers were part of a higher risk population
that did not belong in an RCRP, let alone the same RCRP as someone who failed to register
his car.53 Moreover, they planned the attack knowing that late at night, inmates were rarely
punished for roaming outside their rooms. The overnight supervisor knew that inmates
routinely left their rooms at night. The security camera overlooking Mr. Harris’s room had
not been functioning for a month, which should have been identied on the oversight
checklist and xed. The men who killed Mr. Harris had recently been disciplined, sent
briey to jail, and then returned to the RCRP. One was sent to county jail after a ght in his
room two weeks before the murder and returned only two days later. The other had been
previously transferred into county custody and returned to the RCRP after only a week.
Our review of the RCRP contracts suggests that the problem had less to do with
inadequate contract terms and more to do with enforcement of them. The RFP included
performance targets and required the contractors to include plans to meet these targets in
their proposals. The targets were also fairly clear, although they were output based not
outcome based. And all proposals requested Quality Control and Quality Assurance Plans
to be submitted by the bidder. The RCRP plans included, for example, procedures for
facilities inspection, communication protocols with the contracting unit, surveillance
techniques (redacted in OPRA requests), and procedures for complaints. The plans were
designed to ensure that the bidder meet all the requirements of the contracting units
Statement of Work. Moreover, as OSC noted in its audit, there were penalties built in for
failure to perform key functions, such as escape prevention. The poor on-the-ground
oversight and lack of enforcement, however, rendered these provisions functionally
irrelevant.
For good reason, the law conditioned RCRPs on fairly stringent oversight requirements. In
the end, the violations that led to three killings and an assault could have been identied
by even the most basic of oversight; an occasional walk through, documentation and the
enforcement of automatically enforceable contract provisions. As such, recommendations
51 State of New Jersey Office of the State Comptroller, Residential Community Release Program, 13
52 Dolnick, “At a Halfway House, Bedlam Reigns,” 2012
53 See N.J.S.A. 30:4-91.2; N.J.A.C. 10A:20-4.4 – 4.7; Dolnick, “At a Halfway House, Bedlam Reigns,” 2012
OVERLOOKING OVERSIGHT 28
from OCS’s audit included updating RCRP evaluation forms and ensuring that internal
DOC monitoring staff adheres to the requirements of the forms.54 Additionally, OSC
recommended unannounced spot visits and random selection of les to be reviewed.55
As one of the killers said, his RCRP was “run by [a gang]” that does what it wants”.
To counter this perception, OSC also recommended that DOC strictly enforce contract
requirements that RCRPs have secure holding areas, document and investigate escapes,
develop and implement procedures to deter escapes, including appropriate security
training for RCRP staff.56 Certainly it should not have taken much for the state to notice
that it was not actually being run by the agency.
Case study 4 —
Department of Community Affairs: Sandy Recovery
The State’s response to the impact caused by Hurricane Sandy presents a stark example of
shortcomings in contract oversight and monitoring. In October 2012, Hurricane Sandy
made landfall as a Category 1 Hurricane along the New Jersey coastline. The Federal
Emergency Management Agency (FEMA) estimated that 56,100 residences sustained
severe or major damage.57 Moreover, of those reporting severe or major damage to their
residence, approximately 49% were low to moderate income households.58 In the months
immediately following the storm, FEMA estimated that businesses incurred commercial
property losses of $382,000,000 and another $63,900,000 in business interruption losses.59
The storm had signicant and crippling effects on statewide infrastructure from roads,
railways and other public transport systems that sustained heavy ooding and damage
from debris. These physical losses pale in comparison to the loss of life, physical and
psychological effects associated with a natural disaster of this magnitude.
In order to best facilitate a coordinated response and recovery effort by both state and local
entities, New Jersey was put under a state of emergency. This state of emergency
signicantly impacted the contracting out process in New Jersey. Under the state of
emergency, purchases of goods and services could be made without regard to public
bidding pursuant to N.J.S.A. 40A:11-6 and N.J.A.C. 5:34-6.1.
Various agencies such as FEMA and the Small Business Administration, and initiatives
such as the Reconstruction, Rehabilitation, Elevation and Mitigation (RREM) Program —
funded at $710 million and Homeowner Resettlement Program (HRP) — funded at $215
million60 were established to assist in the recovery efforts. Our analysis examines the
RREM program under the auspices of the Department of Community Affairs — Sandy
Recovery Division. Three other programs also fall under the auspices of DCA as it relates
to Sandy Recovery efforts — The Resettlement Grant Program, the Landlord Rental Repair
Program (LRRP), and the Housing Mitigation Grant Program (HMGP). All of these
54 State of New Jersey Office of the State Comptroller, Residential Community Release Program, 15-16
55 Ibid.
56 Ibid.
57 State of New Jersey, Department of Community Affairs, Community Development Block Grant Disaster Recovery Action Plan, 2013, Public Law 113-2, Trenton
New Jersey.
58 Ibid., i
59 iIbid., ii
60 State of New Jersey Governor’s Office of Recovery and Rebuilding, Recovery Initiatives, http://www.state.nj.us/gorr/plan/index.html (accessed Feb. 2014).
OVERLOOKING OVERSIGHT 29
programs have different policies and procedures in place with regard to administration
and monitoring of Sandy Recovery Efforts. These overlapping and complementary
programs greatly increase the complexity of meta-oversight at the state level. Given the
fact that technology plays a crucial role in aggregating data streams, to effectively monitor
the three programs and their interactions, DCA would have needed to allocate resources
to enhance already antiquated data collection and processing systems and train staff in
their use.
One key component of the RREM program is the establishment of two categories of
contractors — those who administer the program and those who monitor the program.61
This further complicates the overall monitoring of the program as it relates to the
compatibility and integration of systems, capacity of staff to evaluate contractor reports,
and sharing of knowledge and information. Even though the RFQ for the management
of the RREM Program states that the State Contract Manager is responsible for the overall
management and administration of the contract62, RREM contractors were required to
“perform management, le review, reporting and document management for compliance
with all program policies and procedures. File documentation, document management,
quality control, reporting, program and federal compliance, and issue tracking are also
embedded requirements for this functional area” (RFQ for the Management of the RREM
Program, 2013, p. 25). This ultimately means that RREM contractors remained at the
forefront of contract monitoring and compliance. To aid in monitoring and compliance,
contractors were required, per the RFP, to have data collection and storage systems that
were compatible with the State’s MIS and the SSHIP HP-CMIS systems.63 It remains
unclear if this RFP requirement was met. The DCA did identify an internal monitoring
agent64, however it is unclear if the monitoring agent was provided with the requisite
training, nancial resources, and additional staff required to engage in effective contract
oversight. Given the size and scope of the contract, and in light of our recommendation that
oversight costs approximately 20% of contract value, this signals to us that the State quite
likely lacked the internal capacity to effectively monitor and oversee the RREM program.
Contracting out under emergency circumstances presents tremendous challenges, but
there must be protocols in place to ensure that those at risk are treated carefully and
equitably. A 2014 analysis by the Fair Share Housing Center found that 79% of residents
who appealed denials of funds for housing recovery were successful which raises
questions about how well the rm hired to determine eligibility did its job. The report also
found troubling racial and ethnic disparities. African Americans were rejected for RREM
and resettlement grants at two and a half times the rate of whites. Latinos were also
disproportionately rejected.65 Moreover, numerous media reports suggest that those
applying for, or those in the process of receiving, RREM funding lacked access to the
61 State of New Jersey, Department of Community Affairs, Reconstruction, Rehabilitation, Elevation and Mitigation Program and Procedures (RREM), 2013, Number 2.10.36,
p. 6
62 State of New Jersey, Division of Purchase and Property, Request for Quote for Management of the Reconstruction, Rehabilitation, Elevation and Mitigation Program
(“RREM”) for the State of New Jersey Department of Community Affairs, 2013, RFQ775040S, p. 53
63 Ibid., p. 27
64 New Jersey Department of Community Affairs, “RREM Program and Procedures,” 2013, p. 6
65 Fair Share Housing Center, et al., “The State of Sandy Recovery,” 2014, p. 8
OVERLOOKING OVERSIGHT 30
feedback mechanisms required to voice their concerns and issues.66 67 These decits are in
direct contradiction to the process stated in the DCA’s Community Development Block
Grant Action Plan.68 Finally, documents analyzed by the Fair Share Housing Center
suggest that even after contracts were let, program details and policies continued to be
amended without going out for public comment.69 Worse, in many cases, there were no
policies in place until after the program started.
part iv: Recommendations
The issues in the case studies above are not isolated problems but are widespread across
state agencies and are rooted in inadequate institutions, systems and stafng. Based on the
problems identied in our study of New Jersey contracting oversight policies and
practices, we developed the following recommendations. While these recommendations
are discussed in a New Jersey-specic context, the ideas behind them are applicable to any
state or local government looking to improve their oversight of contracts.
In drafting recommendations, our biggest priority is to ensure the institutionalization of
oversight as an unseverable element of the contracting process. We do this primarily
through statutory and regulatory changes or additions that do the following:
• Eliminate the budgetary disincentive to fund administration, ensuring sufcient
resources for other recommendations
• Eliminate the blind spot for third party contracts
• Fill gaps in oversight for both the RFP generation and contract management stages
of the process, and
• Create capacity and a mandate for systemic oversight.
When operationalizing these goals, we were guided by several broad principles.
Underwriting all of the principles below is the bedrock notion that proper oversight is not
negotiable. If the resources do not exist to properly oversee a contract, that contract should not
be let. Oversight is a core governmental function and should not be outsourced. The state
must rebuild and preserve its oversight capacity. In such situations, it is the contract as
a whole, including proper oversight, that is too expensive, not the oversight itself.
• The quality of public services is as important as the cost. A contract that lowers costs by
sacricing service quality is no great value. Good oversight is the only way to
ensure that lower costs come from innovation and efciency rather than a
reduction in service quality.
• Respect and Inclusion of providers and ground-level workers in formulating policy. Many
contractors do excellent work and have developed institutional knowledge and
expertise that the state lacks. The current process does not serve providers either,
66 ibid
67 Katz Matt, New Jersey Quietly Fires Second Contractor Hired to Help Sandy Victims, NJ Spotlight, February 14, 2014, http://www.njspotlight.com/stories/14/02/13/
amid-criticism-nj-quietly-fires-2nd-sandy-contractor (accessed Feb. 2014)
68 State of New Jersey, Department of Community Affairs, CBDG Disaster Recovery Action Plan, 2014, p. 6-12.
69 “Documents Obtained from Christie Administration Through Litigation Raise Questions of Mismanaged Sandy Relief Funds”, Fair Share Housing, press release,
November, 2013, on the Fair Share Housing Website, http://fairsharehousing.org/media/ (accessed Feb. 2014).
OVERLOOKING OVERSIGHT 31
with surveys showing that they are frustrated and limited by the irregularity of the
current system. Surveys of human service nonprots found that current formal
government feedback mechanisms do not generate the systematic change needed
to improve the contracting out process70 71. These reports indicated that human
service nonprot organizations do not have the opportunities or mechanisms to
provide feedback directly to contracting unit ofcials or policy makers with the
power to address structural deciencies on the contracting out process.72 In fact,
the reports suggest that nonprots were more likely to provide feedback in direct
meetings. As such, providers should have opportunity for input when regulations
and rules are promulgated. Likewise, no one in the state knows more about service
quality then the workers who have direct contact with clients and providers. Their
voices must also be included in the process of creating new policy. What we are
recommending are broad requisites to institutionalize and rationalize oversight to
benet all parties and allow the public to reap more of the benets of the
devolution of providers.
• Systemic oversight is critical. Meta-oversight is necessary to ensure that institutional
requirements are being properly executed by the respective contracting units (state
agencies). It also allows for analysis that can be useful in making changes to the system.
• Competition is a necessary condition for privatization to be benecial. Absent
competition, a contract goes from an incentive to innovate to provide better service
more efciently to an opportunity for patronage.
• Retaining the discretion of well-trained experts is better than strict bureaucratic controls.
This applies to both contract managers and human services agencies as a whole. The
goal is not to supplant the judgment of those with the most direct knowledge but to
create institutional priorities that empower them. The qualitative aspects of service
delivery are critical, especially in human services, and should not be reduced to a
handful of discrete metrics. Retaining judgment and discretion is crucial.
• Rebuilding administrative capacity will help line workers focus on delivering quality
services. It is crucial to recognize that the change in governance to involve more
private providers involves a fundamental shift in the state’s primary role and
functions. Analogous to corporations that devolve their supply chains, the state
must closely manage its contractors to ensure quality control and stafng should
reect this. The reporting should not fall entirely on line workers. Although it will
always be important for workers to document their work, resources devoted to
contract management could free them from some of the administrative burdens
they currently handle by shifting them onto contract management staff for whom
this is their primary competence and duty. Moreover, if contracting involves cost
saving efciencies, the additional resources we request should at least in part be
paid for by recapturing some of those efciencies, not to mention savings from
proper execution of cost-recovery provisions that are not currently being enforced.
70 Boris, de Leon, Roeger & Nikolova, “Human Service Nonprofits and Government Collaboration: Findings from the 2010 National Survey of Nonprofit Government
Contracting and Grants,” Urban Institute, Washington DC, 2010
71 Pettijohn, Boris, De Vita & Fyffe, “Nonprofit-Government Contracts and Grants: Findings from the 2013 National Survey,” Urban Institute, Washington DC, 2013
72 Ibid., 34
OVERLOOKING OVERSIGHT 32
In sum, our recommendation is that the decision to contract out must be contingent upon
a fully resourced and eshed out system of oversight that is in turn contingent upon the
restoration, articulation and preservation of the contract development and management
role in state government. In other words, to ensure proper oversight, there must be an
experienced manager who has deep knowledge of the service that is being delivered and
the tools to do it well. This manager must serve as the node of the network, taking in
information about what is going on in real time, and exercising the discretion to manage
in the best interests of all. At its core, the work entails ongoing, active, exible, relational
management of the contract that respects, supports and consults the direct service
providers and does not put the entire burden of performance measurement on them.
Here is how we would achieve this:
Statutory Changes and Additions
Eliminate the Hole in Third-Party Oversight
Every statutory change listed below should make explicit that its provisions apply to
third-party contracts. While these contracts can still be designed and managed within
the contracting unit — the entity with the most substantive expertise and the most direct
connection to the contractors — they should be subject to these broad requirements and
systemic oversight.
Ensure that Emergency Contracts are Not Exempt from Oversight
While there is a legitimate argument for the relaxation of competitive bidding
requirements in the case of the dispensation of contracts to provide emergency relief, the
case of Sandy relief shows that this raises the importance of the contract management
stage of oversight. Legislation should make clear that where bidding requirements are
relaxed, contract management requirements must remain.
Sufcient Resource Requirements
The legislature should enact legislation that conditions the issuance of service contracts on
sufcient resources to oversee those contracts and provides a oor on the level of resources
that may be deemed sufcient. In New Jersey, the law should require the State Treasurer to
promulgate regulations detailing what constitutes “sufcient resources.” At a minimum,
“sufcient resources” should be dened to ensure that every contract has enough qualied
staff with sufcient capacity to properly oversee it. The U.S. Ofce of Management and
Budget’s stafng formula provides a guide to what ratio should be deemed sufcient.73
Human services contracts should have more staff relative to the size of the contract.
The law should also provide a mechanism for evaluating whether a contracting unit’s
resources, and in particular its staff ratios, are sufcient to maintain proper oversight.
This will effectively cap the number and scale of contracts that can be let without an
increase in management staff. While this may seem expensive, better oversight will offset
some of the upfront costs through improvements in service delivery and better collection
73 Michel, R. Gregory. Cost Analysis and Activity-based Costing for Government. Vol. 6. Gfoa, 2004. The ratio is roughly 1 contract manager to every 20-25 employees
providing the service. The ratio declines slightly as the contract gets larger owing to economies of scale.
OVERLOOKING OVERSIGHT 33
of penalties due to the state. Accounting for this true cost will also on occasion identify
scenarios where services can be more efciently provided in house. Insofar as the state
OMB currently has the authority to evaluate contracting units’ performance, it should be
tasked with conducting assessments of “sufcient resources” in conjunction with its
review of overall performance. The law should also appropriate funding to allow Treasury
and the state OMB to increase their capacity accordingly. The State Comptroller and or the
SCI should be granted the authority and resources to oversee the process and issue
recommendations.
New State Contract Manager Requirements
In addition to ensuring sufcient numbers of contract managers, legislation must ensure
that they have sufcient expertise. The State Contract Manager role should accomplish two
things: (1) it should ensure that all contracts are managed by someone with the expertise
and resources to protect the states’ interests and (2) it should free up workers providing
direct services from administrative burdens so they can focus on serving clients. To
accomplish this, the State Contract Manager or Managers (depending on the demands of
the contract) assigned to each contract should be individuals whose sole job is to oversee
the contracting process, from RFP design through contractors’ performance. State Contract
Managers should both directly oversee contractors and aggregate information received
from direct service workers, such as DCPP caseworkers. They should also serve as liaisons
to OMB, Treasury, SCI and/or OSC, to facilitate systemic oversight. And they should be
assigned to only one contracting unit. Treasury should be tasked with issuing regulations
dening the minimum qualications of this person. These qualications must include both
management capacity and substantive knowledge of their contracting unit’s services. The
hiring decision for State Contract Managers should therefore be made jointly between
Treasury and the individual contracting unit. Comprehensive, ongoing training should be
mandated for those not already qualied. This strengthened corps of contract managers
would be paid out of the oversight and monitoring charge recommended above.
A Ban on Outsourcing Oversight
The State should eliminate any ambiguity around whether oversight can itself be managed
by a contractor with a clear statute precluding the outsourcing of oversight activities.
Outsourcing oversight does not absolve the state of its responsibility as steward of public
resources. It merely adds another layer to be managed and remove nal service provision
further from the accountable state. The state is better served by developing internal
expertise as the primary manager of its own contracts.
Compulsory Contract Costing
Before a contract is let, the state should require a three-step cost comparison:
1. There should be activity-based cost (ABC) accounting for the specic activity
being proposed.
2. Once the ABC accounting has been done, an avoidable cost analysis in terms of
actual dollars saved should be estimated.
3. The avoidable cost of the activity plus or minus the new costs of contract bidding
and supervision should be compared to the contract price.
OVERLOOKING OVERSIGHT 34
Make Certain of the Recommendations of Any State
Investigation Binding
The legislature should enact legislation making recommendations from SCI investigations
binding under certain conditions. SCI should be required to provide contracting units with
overall ratings and those with the worst ratings should trigger binding recommendations.
For example, on a three-point scale of Poor, Fair, Good, a contracting unit receiving a rating
of Poor, would be required to follow through with the recommendations within a set
timeframe set by SCI. It would be enforced through the same funding-denial mechanism
instituted by Treasury, above.
Require all human service contracts to establish mechanisms for client,
family and line worker voice
The legislature should enact legislation that requires DHS to establish an ombudsperson to
represent clients, their families and line workers and a community oversight committee
that has a formal and ongoing role in enforcement. These organizations would become
partners in monitoring and enforcement of projects or facilities, which involves according
them clearly delineated and publicly recognized responsibilities, providing access to the
information a regulator has about non-compliance, standing to le complaints or sue
under the regulatory statute and a seat at the table along with government investigators
and contractors in negotiations regarding improvements, nes and penalties.
Include all state contract managers, state employees, contractors and
contractors’ employees who raise questions about the quality of service being
delivered under the New Jersey Conscientious Protection Act (CEPA).
At present, only nurses are covered for whistleblowing about quality of service. We
propose to extend this protection to all state and contract workers and managers.
All contracts should be rebid after, at most, 3 years.
Competition is an essential element of the argument in favor of privatization and cannot
just be a matter of ensuring a minimum numbers of bidders. Contracts that do not require
rebidding eliminate the key incentive for private companies to provide quality services.
Instead they create a strong incentive for paying to play and leave legal, rather than market,
mechanisms as the primary mode of contract enforcement. While any rebidding
requirement opens the possibility for loss of the contract for poor performance that remains
short of a full breach of contract, if the tenure is too long, the likelihood of any competitors
being available when the contract is rebid goes down. Conversely, for many contracts,
continuity is important. In such cases, too short a term is problematic. For most contracts,
3 years will achieve the appropriate balance. Where 3 years provides insufcient continuity,
the state has a strong incentive to provide that service itself. Finally, to maximize the
effectiveness of a rebidding requirement, data gathered using the mechanisms already
listed here should be used to evaluate contractors’ past performance (both on the particular
contract and on any other contracts with the state). The contract should also be costed again
in light of lessons learned from the prior contract. In this way, the state can benet from its
data gathering efforts and become a more informed consumer of contractors’ services.
Make Certain of the Recommendations of Any State Investigation Binding
The legislature should enact legislation making recommendations from state investigative
units including the State Commission on Investigation, Ofce of the State Comptroller and
Ofce of the State Auditor binding under certain conditions. Investigative units should be
required to provide contracting units with overall ratings and those with the worst ratings
should trigger binding recommendations. For example, on a three-point scale of Poor, Fair,
Good, a contracting unit receiving a rating of Poor, would be required to follow through with
the recommendations within a set timeframe set by SCI. It would be enforced through the
same funding-denial mechanism instituted by Treasury, above.
Make certain of the recommendations of any state investigation binding
The legislature should enact legislation making recommendations from state investigative
units including the State Commission on Investigation, Ofce of the State Comptroller and
Ofce of the State Auditor binding under certain conditions. Investigative units should be
required to provide contracting units with overall ratings and those with the worst ratings
should trigger binding recommendations. For example, on a three-point scale of Poor, Fair,
Good, a contracting unit receiving a rating of Poor, would be required to follow through with
the recommendations within a set timeframe set by SCI. It would be enforced through the
same funding-denial mechanism instituted by Treasury, above.
OVERLOOKING OVERSIGHT 35
Transparency from bids through contract execution
At present, it is too difcult and time-consuming to obtain access to actual RFP’s, bids and
contracts. All of this information, not just for contracts overseen by DPP, but all contracts
let by individual agencies to third party vendors must be made available on a publicly
accessible database.
Authority and Appropriations for Data Systems
Technology has advanced far beyond the systems in place in most state agencies.
Improved data systems can drastically reduce the resources required to provide direct and
meta-oversight. Funding for a statewide data-system should therefore be appropriated for
that purpose. In New Jersey, the Ofce of Information Technology, within Treasury, should
be charged with responsibility for the system, in coordination with OSC, OMB, and
relevant personnel from the various contracting units. DPP should be granted authority to
promulgate regulations requiring all contracting units to have oversight data systems and
providing the specications such data systems must meet.
Regulatory Changes
Service providers should be involved in the drafting (as opposed to just the comment period) of the
regulatory requirements derived from the authority granted in the above statutory requirements. In
addition, the following regulatory changes should be made under existing authority, again
with service provider input in the drafting stage. These changes should apply to third-
party contracts.
Additional Requirements for all RFP’s and Contracts
DPP should provide additional standard language to be included in all RFP’s to ensure
contract terms that provide additional protections to the state and taxpayers. Among these
requirements should be:
• Regular, qualitative, multi-stakeholder evaluations of services provided conducted
by a skilled, experienced manager who looks to service providers, line workers,
clients and their advocates as people on the ground who know and care about how
their clients are doing as important sources of information
• Specic data collection and reporting requirements
• Pre-established monitoring points (specic times) as well as an understanding that
some monitoring will be random
• Independent monitoring or auditing of the contractor by certied professionals or
community oversight committees,
• Outcomes-based benchmarks developed in consultation with the contractor with
clear performance measures against which the process and acceptability of the
work will be evaluated and corrective measures taken,
• Milestones tied to payment performance evaluation would include: consulting
clients, client families and employees about their experiences with the contractor,
monitoring consumer complaints, sanctions for poor performance and rewards for
strong performance,
OVERLOOKING OVERSIGHT 36
• End the practice of automatic contract renewals. All contracts would sunset
after 3 years after which contractors would have to reapply in a competitive
bidding process.
• Compliance with existing labor and employment laws including: the National
Labor Relations Act, Fair Labor Standards Act, Occupational Safety and Health Act
Improve Data System to Facilitate Better Oversight and Meta-Oversight
Data systems serve several purposes, all of which make it easier to evaluate performance.
A good system allows performance outcomes and expenditures to be tracked on a larger
scale, it facilitates the work of “boots on the ground” by making it easier to orchestrate
reviews and catalogue information, it bridges the gap between the “boots on the ground”
and those that know what is in the contracts and it allows supervisors to track the work of
the “boots on the ground.” Unfortunately most departments systems in New Jersey are
antiquated or non-existent and none are currently capable of being mapped onto others. A
data system should be created that has the following features:
• Ubiquity: All contracting units that issue service contracts should have data systems.
• Centrality and Accessibility: If all data systems are not the same, all individual
data systems should be made to map directly onto a centralized system viewable
at different levels to different groups (Legislature, OMB, OSC, and the Public).
State Contract Managers should have primary responsibility for data entry within
contracting units. They should input data on overall contract performance (e.g.
cost overruns, delity to contract terms) and caseworkers’ complaints and
assessments of client outcomes (e.g. client’s condition has substantially improved
or this psychologist’s reports are frequently late and nearly identical to prior
reports). Contractors should log objective, administrative data (number of beds,
number of visits etc.) and performance data as set forth in their contracts, that can
be cross-checked by the State Contract Manager and audited by higher-level
reviewers (e.g. OMB, OSC, the Legislature, Researchers, the Public).
• Accountability: Systems should include data on contractor performance, including
outcomes related to service quality as well as nancial performance with respect
to several measures (e.g. cost per client, cost per outcome, overall cost
effectiveness, etc.) 74
These recommendations are intended to catalyze a conversation about how to redesign
state contracting systems with the fundamental principle that oversight is a necessity —
not an optional luxury—embedded in their DNA. Contract oversight is an essential
element of a responsible contracting system that protects the public interest.
74 State of New Jersey, Department of Mental Health and Addiction Services, 360 dashboard reviews may provide a good model. This model aggregates data from
numerous data fields and benchmarks it alongside of statewide and regional averages.
OVERLOOKING OVERSIGHT 37
TABLE 1: Request for Proposal (RFP) Analysis
Department DHS DHS DHS DHS DHS DHS DHS DOC DOC DOC DCF DCF DHS DHS DHS DHS DHS
Division DMHAS DMHAS DMHAS DMHAS DMHAS DMHAS DMHAS OCP OCP County of
Mercer Central
NJ Hudson
County DDS -
Camden DDS -
Hudson
Family
Develop-
ment DFD DFD
Case B C D E F G H I J K L M N O P Q R
Comprehensive contract costing and design
Detailed program costs H H H H H H H H H M M M M M M H M
Detailed personnel costs H H NP H H H H H H H H M M M L H M
Specify monitoring / oversight personnel costs L M L M M M M L L L L L NP NP NP L NP
Detail and dene impact on clients or recipients L L M M M L M L L L H H H H L L H
Outline how services delivered H H H H H H H H H H H M H H H NP L
Require identication of who delivers the service M M M H M M M M L H M M NP NP M L L
Compliance with laws and regulations H H H H H H H H H H H H M M H H H
Specify the workload of service providers H H M H H H H H H H H H L L L L M
Require contractor to carry insurance H H H H H H H H H H H H NP NP NP NP L
Specify clear and detailed incentives L NP NP M NP NP NP M M NP NP NP NP NP NP NP NP
Specify penalties and sanctions L M NP NP L L L L L L NP NP NP NP L L NP
Contract oversight and monitoring
Require service statistics to be reported L NP H H L H L L H H H L L L L M L
Performance -based acquisition and
service contracting L L NP M NP NP NP L M L NP NP M M L NP L
Contracting unit established a formal
monitoring system H H H M M NP NP L L M
Is the monitoring system specied in the RFP L L NP M L L M L L M M NP NP NP L L M
Collaborate to develop performance measurement
and monitoring system L L NP NP M NP NP M M L L L NP NP NP L NP
CU identied specic data to monitor performance M L M H M L L L M M H L L L L L L
CU identied specic data for benchmarking purposes L L M L L L L H M M L L NP NP NP NP NP
Identify who is responsible for monitoring contracts L L NP H L L NP M M L H NP L L NP L L
Continuous monitoring L L NP M L M L M M L L NP L L L L L
Mechanisms to evaluate contractor monitoring capacity L L L L L L L L L L L NP NP NP L NP NP
Adequate stafng and training
Contractors provide training to contractor
monitoring staff L L L H H M M L L L M L NP NP NP NP NP
Contracting unit staff provided with service specic
monitoring training NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP
Contractors identify and train contract monitoring staff L L L M H M M L L L L L NP NP NP NP NP
Mechanisms to evaluate stafng, nancial
management capacity M M M H M M M H H M H M M M M L L
Relational contracting and communication
CU to meet / discuss the operation of the contracted
service or activity L L NP M L L L L L L L NP NP NP NP NP NP
CU communicate with the contractors solve
operational problems NP NP NP L NP M NP L M L M NP NP NP NP NP NP
Communication protocols for monitors to access
decision-makers L L L L L L L L L L L L NP NP NP NP NP
Clients served communicate to contractor M M L M M M L L L L H M H H L NP L
Clients served communicate to contracting unit NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP NP
CU and contractors develop standardized service
procedures and protocols NP NP NP NP NP NP NP NP NP NP NP L M M NP NP NP
Frequency monitor contractor performance L L L L L H L M M H H NP L L L L L
Frequency monitor scal performance L L L L L H L H H M NP NP NP NP L L L
Frequency monitor service performance L L NP L L H L M M M L NP L L L NP L
$1.68M $8.41M $3.00M $5.337M $1.75M $0.570M $1.00M $64M $1.005M $.258M $0.60M $0.255M $5.20M $11.06M $5.56M
OVERLOOKING OVERSIGHT 38
Reviewer Guidelines and Scoring Criteria75
The following describes the guidelines for evaluating contracting unit Request For
Proposals (RFP’s’). The overall goal is to have all reviewers have consistent evaluative
criteria for screening the presence of an item in the RFP. The criteria will be used by the
reviewers to evaluate RFP’s in two major areas — Performance measures (i.e. does an RFP
identify, detail and require systems to assess service outcomes) and Contract Oversight (i.e.
how the contracting unit monitors contracted work). A third category, Signed Contract (i.e.
RFP’s that have been awarded) will also be evaluated based on availability of the
documentation. Each major area is broken into particular items suggested by the literature
to be best practices in contract development. Reviewers will judge each item based on the
following non-numeric scale:
NP: Not present — refers to an item not mentioned in the RFP.
For example, item 35 — Has the contracting unit identied specic sets of data they
are collecting to monitor performance — e.g. program products, caseloads ratios, donor
client satisfaction? If the RFP makes no reference or contains no narrative relating if the
contracting unit collects data to monitor contractor performance, this item would be coded
as NP
L: Low — refers to an item mentioned in the RFP narrative but contains no further
description.
For example, item 35 — Has the contracting unit identied specic sets of data they are
collecting to monitor performance — e.g. program products, caseloads ratios, donor client
satisfaction? If the RFP mentions that the contracting unit collects data for monitoring
purposes, BUT does not say what type of data then this item would be rated as L
M: Medium — refers to an item that is both mentioned in the RFP narrative and contains
a description of the item.
For example, item 35 — Has the contracting unit identied specic sets of data they are
collecting to monitor performance — e.g. program products, caseloads ratios, donor client
satisfaction? If the RFP mentions that the contracting unit collects data for monitoring
purposes, and also identies what type of data is being collected (e.g. caseloads) then this
item would be rated as M
H: High — refers to an item that meets three criteria. The item must be mentioned in the
RFP narrative, must contain a description of the item, AND must be quantied and
measurable.
For example, item 35 — Has the contracting unit identied specic sets of data they are
collecting to monitor performance — e.g. program products, caseloads ratios, donor client
satisfaction? If the RFP mentions that the contracting unit collects data for monitoring
purposes, and also identies what type of data is being collected (e.g. caseloads), AND the
data is quantied and measurable (e.g. case load as a ratio of number of clients to number
of case managers) then this item would be rated as H
75 Savas, Emanuel S. “Competition and Choice in New York City. Social Services.” Public Administration Review 62, no. 1 (2002): 82-91.
OVERLOOKING OVERSIGHT 39
Document Analysis
Documentary evidence, in this case contracting unit Request for Proposals (RFP’s), is used
to corroborate and augment evidence from the interview data. Specically, the RFP’s were
gathered from 6 contracting units within three state agencies. The RFP’s analyzed were for
the delivery of human services including supportive services for individuals with mental
illness, supportive services for individuals with substance and drug abuse problems, and
support services for reintegration of inmates into the community. The RFP’s ranged in
value from $500,000 to $64,000,000. The RFP service areas included both state wide and
county specic focus.
The documents were analyzed and coded as indicated above.