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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 findings 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 specific 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. Moreover, contracting units must develop standards and communicate clear and explicit guidance on what is expected from contractors. Research also tells us that government must engage in thorough contract costing before a contract is 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 significant 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 difficult 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 exemplified by the massive shortage in qualified 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

Significant Neglect of On-the-Ground Oversight

Effective oversight of contractors involves:
1.    adequate staffing and training of contract managers
2.    thorough contract costing and design
3.    strong ongoing communication and cooperation between contract managers and
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:
• Office of Information Service’s workforce, critical to providing the data necessary for oversight, has dropped from 82 in 2003 to 54 in 2012
• The Office 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

No contract costing and minimal specification of contract terms prior to the issuance of RFP’s. Every official we asked confirmed that, to their knowledge, costing was not done in any systematic way.

Contract Managers are not always qualified or properly trained to fulfill their roles effectively. According to officials from every department studied, there are not enough human resources being assigned to oversight and effective oversight is not being fulfilled 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 specific 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.

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 Deficiencies in State Oversight

Many of the most significant oversight decisions and processes are subject to few if any formal rules The Division of Purchase and Property (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. 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 sufficient protections for the vulnerable clients who received the services and the taxpayers who pay for them.

The Independent Office of the State Comptroller (OSC) and the legislative Office of the State Auditor (OSA) both have authority to review decisions and audit processes. 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. 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 sufficient 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 efficiency or effectiveness of resources allocated to contractors. OSC and the Office 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 significant 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


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 sufficient 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.

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.

Sufficient Resources Requirements
The legislature should enact legislation that conditions the issuance of service contracts on sufficient resources to oversee those contracts and provides a floor on the level of resources that may be deemed sufficient.

New State Contract Manager Requirements
The sufficient 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 efficiency 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.

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.

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