Orange County, California was having a difficult time finding jobs for its welfare recipients. While there were 20,000 people on the welfare rolls, the county was only able to find positions for 1,200.
Orange County officials knew they had to do something. So they divided the county, which is the home to Disneyland, in half. Then it outsourced half of its welfare-to-work program to Maximus, a McLean, Virginia supplier.
The supplier revamped the placement process and found 3,000 people jobs in its first year. The county workers, worried that they might be fired if they didn’t increase their numbers, were able to place 3,000 people the next year. Currently both groups are each placing between 5,000 and 6,000 people annually.
“Bringing in the private section gives existing government employees some competition. It’s a healthy process,” says David Mastran, Maximus CEO. Performance is rarely stellar in a monopoly situation where competition is not a bedrock of the corporate culture. Competition becomes a powerful reason why government agencies outsource, he observes.
As the Orange County program grew, the California agency did not have to hire any additional county employees. The outsourcing vendor handled the growth, another reason government agencies outsource. Scalability becomes the outsourcing supplier’s challenge.
Maximus is one of the largest government outsourcing companies, with 130 offices and 4,000 people on the payroll nationwide. The company originally focused on the federal government but has spent the last 15 years concentrating on agencies at the state and local level.
Collecting Millions in Child Support
Maximus specializes in health and welfare programs as well as child support collection. Last year it collected $275 million in child support payments around the country.
The firm’s first child support engagement was for Nashville, Tennessee, collecting money for all those exes that didn’t live in Texas. When Maximus arrived, the county child support agency was using an outdated computer system; workers had to wait 20 seconds for a response every time they typed in a command. They also were housed in a building that had seen better days.
Collections were poor so the state felt “it had to do something drastic,” says Mastran. The state put out a Request For Proposal. One requirement was that the outsourcing provider had to retain all the state’s employees. “We were worried about that,” Mastran recalls.
Once Maximus won the contract, it moved to a more choice location and gave the old employees a new computer system. Its executives spent time training its new staff. And the supplier promised bonuses for exceptional work.
Employee moral soared. Collections quadrupled. “We put them in an environment where they could succeed. These employees turned out to be just as good as any other,” says Mastran. The state was so happy it renewed Maximus’ contract.
One reason the vendor is able to perform with such high success is it understands how to motivate its staff. Maximus managers give each employee a quota. Management posts the production numbers for each staffer on a bulletin board, so personal performance is highly visible.
“What Gets Measured, Rewarded Gets Done”
And money motivates. The vendor always includes a bonus for performance. These employees typically are not at the top of the payment totem pole, so receiving a financial reward can make an impact in their finances. Maximus’ guiding business principle is, “What gets measured and rewarded gets done,” says Mastran.
The CEO reports a group of divorced mothers initially opposed the outsourcing of child support check collection. Mastran asked them who they would prefer to collect their money: “Employees who get paid whether they collect any or not or employees who only get paid if they collect?” They decided to support the outsourcing effort.
Successful government outsourcing is totally dependent on the parties sharing the risk, the Maximus executive believes. If the vendor has to shoulder all the risk, the relationship is more likely to fail. That’s because the vendor is so busy managing the risk it is not able to concentrate on finding creative solutions to solve the problem in a more elegant way.
For example, Maximus wants an agency to guarantee it will have a set number of cases a month. The vendor then can staff properly and allocate resources appropriately. But if the government says we’ll give you between 0 and 100 cases a month, the vendor can make no clear plans. It has to remain flexible as it waits for the caseload to develop.
“Governments must provide a clear scope of work so the vendor can staff to do the job,” says Mastran.
Another ingredient in the recipe for success is the ability to share the rewards. Governments should guarantee the vendor’s costs and then pay a fee above that based on performance. If Maximus performs better than its county competitors, its fee should increase. Of course, it should suffer a penalty if it performs worse. “The government is sharing the risk by covering our costs. Then we share the upside and the downside,” he explains.
Mastran firmly believes government should not be in the business of delivering services. “The government doesn’t build cars,” he points out. “Let the private sector do it.”
Lessons from the Outsourcing Primer:
- Dividing an agency’s workload in half and outsourcing that half creates competition, encouraging the government workers to match the performance of the provider.
- Outsourcing can update antiquated computer systems for government agencies and create a more successful work environment.
- Bonuses reward wage workers and can make a significant impact in their motivation.
- Sharing the risk is a key element for successful government outsouring. So is sharing the rewards.
- Governments must clearly define scope for the outsourcing engagement to work.