Knowing What You Buy in State Government

Tight budgets demand performance-based contracting where spending is measured against results.There were a couple of interesting developments in state budgeting last week.

First, Governor Kitzhaber ordered a hiring freeze in state government, a step many observers thought had already been taken in response to the continuing downturn in state revenue. His order followed a request from the three co-chairs of the Joint Ways and Means Committee who are preparing for a budget-dominated legislative session in February.

Second, Kitzhaber's chief operating officer for state government, Michael Jordan, appeared before the annual Business Summit in Portland to summarize a new bare-bones approach to the state government budget for the 2013-15 biennium. According to observers who heard the Jordan presentation, it will depart from the time-honored approach of building one biennial budget on top of another without taking a zero-based look at programs.

But the headline of this blog states another key premise that should exist in state government.

If you, as a state agency manager, are buying something from a private sector contractor, you should know what you are buying. If you, as a state legislator, are reviewing or voting on an agency budget, you should know what you are buying.

Call it "performance-based contracting."

It appears that such a concept is not as widespread as it should be in state government. Last session, in drafting what became Senate Bill 964, the Legislative Counsel staff person said that, as a phrase, "performance-based contracting" did not exist anywhere else in state social services statutory parlance. That proposition almost succeeded in removing the phrase from the draft of Senate Bill 964, but Senator Al Bates, D-Ashland, a key member of the Joint Ways and Means Committee, persevered in demanding that the phrase be included.

The rest is history. SB 964 passed both the Senate and the House and, with an emergency clause, became law in Oregon, ORS 418.480-495, as soon as it was signed by the governor.

Here is what the law says:

"(6) “Performance-based contract” means a contract entered into under section 4 of this 2011 Act that: (a) Requires a program to demonstrate successful child-driven outcomes when compared to alternative placement options and long-term cost savings; and (b) Bases termination or renewal of the contract on demonstration of the factors described in paragraph (a) of this subsection."

The goal is for the bill to be used by the Department of Human Services to fund efforts modeled after a program in Jackson County, as well as "Oregon Intercept," a new approach developed by Youth Villages/ChristieCare, to control the foster care caseload in Oregon, which is unusually high compared to other states around the country.

In discussions of performance-based contracting, Senate Republican Leader Ted Ferrioli, R-John Day, said the Department of Corrections has used the approach for several years to award contracts to help control recidivism among state inmates who are paroled. SB 964 is the maiden voyage of the concept in social services.

The theory of performance-based contracting is simple. Organizations that want to contract with state government in Oregon should attest to the performance they will achieve in order to win a contract. After a reasonable period of time, say a year, the private operators should be able to keep a contract if they achieve the performance they propose or lose the contract if they don't.

The best ally for performance-based contracting is the extremity of the state's financial circumstance.  

What better time than when money is tight for policymakers to know exactly what they are buying?


The author, CFM partner Dave Fiskum, has lobbied in Salem for more than 30 years and, for the last 10 years, has represented ChristieCare, which, last April, merged with a national non-profit, Youth Villages, to become Youth Villages/ChristieCare.  One of his tasks last session was to lobby in favor of Senate Bill 964, which he believes can be a model for performance-based contracting.