Chapter 6 - Designing an Effective RFP

CHAPTER 6

DESIGNING AN EFFECTIVE RFP

Never tell people how to do things. Tell them what you want to achieve and they will surprise you with their ingenuity.

- General George S. Patton

The importance of the request for proposals (RFP) cannot be overstated. It is a multipurpose document that, among other things, must clearly communicate the purpose and goals of the program to be privatized, promote lively competition among potential contractors, and generate high-quality proposals that can be rated objectively. With minor modifications, the scope of work described in the RFP will closely resemble the requirements in the service contract.

This chapter examines the RFP process from beginning to end. It discusses the fundamental decisions the Title IV-D agency must make before it can begin writing the RFP. It reviews the basic elements of an effective RFP document. And it describes how to conduct a proposal solicitation and review process that is open to public scrutiny and fair to all competitors.

An overarching theme of this and the next chapter, which focuses on specific contract issues, is partnership. The Title IV-D agency in issuing an RFP is seeking a partner to share the risks, rewards, and responsibilities of child support enforcement. With a carefully crafted RFP and a rigorous selection process, the agency should find the best possible partner. With an explicit, fairly negotiated, outcome-based contract it will ensure that the partnership succeeds in meeting the needs of its customers.

This raises the other major theme of these chapters: results. The overriding purpose of preparing the RFP and contract, in the words of General Patton, is to "tell them what you want to achieve"-not to tell them how to do it. These documents should focus as much as possible on results and as little as possible on process. Forcing a contractor to operate under the same constraints as government diminishes the main advantages of privatization: innovation, motivation, and flexibility. David Mastran, the CEO of Maximus, a major human services contractor, offers this advice:

The agency should hold the contractor accountable for compliance with state and federal regulations, program results, and for total costs, and not manage internal operations or line item costs. If the contractor needs agency approval to change internal procedures, buy equipment, hire personnel meeting agency-specified qualifications, give raises, reorganize, or change management, then the agency will not achieve the full benefits of contracting. (1996)

Step 5: Design the privatized system

Before an RFP to privatize child support services can be written, the Title IV-D agency will need to resolve the following issues:

Which services will be contracted out?
How will privatization proceed? By pilot testing, by incremental phases, or all at once?
How many partners does the agency want? Will services be delivered by a single contractor or by multiple providers?
Who will be allowed to bid-just private firms, or public and nonprofit agencies as well?
What is the optimum contract length?
What are the roles and responsibilities of the contractor, the Title IV-D agency, and other public and private partners?
What will happen to current public employees, equipment, and facilities?

By answering these questions, the Title IV-D agency establishes the design for the privatized system. Systems design can proceed in three phases: (1) establish the overall framework for privatization-that is, how contracting out will be accomplished; (2) decide how the privatized child support system will operate-that is, how all the pieces will fit together; and (3) determine what impact the privatization of services will have on the Title IV-D agency's organization, operations, and budget. This is an iterative process in which decisions made in later stages will cause the agency to revisit and revise earlier designs and decisions.

ESTABLISHING THE FRAMEWORK FOR PRIVATIZATION

Type of Service and Contract Length

The services to be contracted out will have been identified during the process of making the privatization decision. The next step in designing the privatization framework is to determine approximately how long the contract period should be. In child support enforcement, contracts generally run from one to five years depending on the type of service and the degree of investment required by the contractor.

Some services, such as locations, process serving, and blood testing, are "off-the-shelf" services that can be purchased through short-term contracts. In these cases, a private firm provides essentially the same service to the child support agency as it does to other customers. Providers are usually plentiful and contracts are bid or negotiated on an annual or biennial basis.

Other services, such as collections and payment processing, usually require longer contracts of around three years. This is because the provider must be able to recoup the initial investment in specialized equipment, staff training, systems development, etc., that is required to meet the specific needs of the child support agency. In the case of collection contracts in which the provider payments are based on the amount of child support collected, providers claim they typically do not begin to make a profit until the third year. This is due in part to the length of time needed to locate non-custodial parents and to take the steps necessary to get them to pay.

Full-service contracts are the longest-usually a minimum of three years, but often as long as five years-because they have the highest start-up costs and take the most time to become fully operational. Contractors must invest heavily in staff recruitment, training, equipment, systems development, and facilities. The Title IV-D agency benefits from a long-term contract, however, because these start-up costs are spread over the life of the contract, thus reducing the agency's annual payments to the contractor in the first years of the contract. Also, the agency is spared the cost of frequently rebidding the contract, which is both expensive and time-consuming.

Implementation Strategies

The next step is to select a strategy for implementing privatization. The strategy selected will depend on a number of factors including the type of service to be privatized, the degree of controversy in the privatization decision, and whether there are caseload, political, or other pressures to privatize quickly. The following are examples of implementation strategies in child support enforcement.

Privatize all at once

If the service is new, the privatization decision is not controversial, and there is an immediate demand for the service-such as a federal mandate under welfare reform-the appropriate strategy may be to privatize statewide all at once. Many Title IV-D agencies, for instance, used this strategy when they initiated contracts with private firms to operate statewide in-hospital paternity acknowledgment programs in response to requirements of the Omnibus Budget Reconciliation Act of 1993. It is harder to apply this strategy when the service is well established and change is controversial. For example, Mississippi's governor proposed privatizing all child support services across the state in 1994, but the initiative was scaled back to a two-county pilot when the legislature opposed such a bold move.

Pilot test first

A favorite privatization strategy in child support enforcement is to conduct a pilot test in selected locations or for a portion of the caseload before making a final decision on whether to contract out services permanently. Maryland, for example is testing full-service privatization in Baltimore and a rural site for three years. At the end of this period, an evaluation report and recommendations will be sent to the legislature. Some states experimented with collections contracts by first seeing what private firms could do with the most delinquent cases before opening up other portions of the caseload.

Pilot testing, which should always include a rigorous evaluation component, allows all interested parties to determine whether privatization is a viable option for a particular service. It also helps the Title IV-D agency identify the potential costs, benefits, and barriers to privatizing a service on a larger scale. For small demonstrations, the contract can be let on a non-competitive basis. Knowledge gained from the pilot can then be used to develop a competitive RFP for expanded implementation. For large-scale pilots-such as in Maryland where privatization is being tested on over 100,000 cases and collections are expected to exceed $50 million annually-even the contract for the pilot must be competitively bid.

A potential problem with pilot testing is that it may give the contractor conducting the pilot an unfair advantage in future competition. The problem can be avoided in some instances by contracting with several companies to provide services during the pilot. This has the added benefit of allowing the Title IV-D agency to determine in advance of writing the RFP what outcome and performance standards it can reasonably impose on contractors.

Two states plan to use pilots to winnow the field of potential competitors for collection contracts. Florida plans to award contracts to multiple providers for a one-year pilot so it can evaluate each provider's cost effectiveness. During the pilot, the statewide pool of delinquent obligations will be randomly assigned to the vendors. Subsequent bidding would be limited to companies demonstrating the highest rate of return. North Carolina will use a "winner take all" strategy to begin privatizing bad debt collections in its state-run offices. The state will contract with multiple vendors for a year so it can compare performance. At the end of this period it will contract only with the most successful vendor.

Incremental implementation

A review of states that have initiated full-service privatization of child support enforcement services shows that they have all taken an incremental approach to privatization. There are three primary ways to phase in privatization:

Geographically-either by selecting local child support offices with diverse characteristics for pilot testing under varied conditions, or by starting with those units that have the greatest need for improvement;

By function-for example, starting with collections or payment processing and then adding other functions to move toward full-service privatization;

By portions of caseload-for example, starting with the oldest cases first or privatizing only non-public assistance cases.

Idaho, which had not yet gone to full-service privatization when the current study was conducted, was considering privatizing its entire program through a series of staged implementations or pilot projects. One possible sequence being considered was to start with the receipting and posting function, then pilot enforcement and collections, and then pilot establishment and case initiation.

Number of Partners

Another decision to be made prior to writing the RFP is to determine how many contractors the Title IV-D agency will use to deliver services. Should the state contract with a single provider to deliver a service statewide, or should it seek multiple providers? The Tennessee child support enforcement administration, for example, made a deliberate decision to use multiple contractors when it began full-service privatization. In the five judicial districts it has privatized, one provider has three contracts and a second contractor operates in the other two districts.

Using multiple contractors has the following advantages:

Promotes competition to keep service quality high and costs down;
Avoids replacing a public monopoly with a private monopoly, thus promoting innovation and responsiveness to customer needs;
Ensures continuity of service-if one provider should fail, another is available to take over service delivery in the affected area.
The disadvantages of using multiple contractors are:
Costs the Title IV-D agency more to administer and monitor multiple contracts than it does for a single contract;
May confuse customers and other partnering agencies who deal with multiple providers due to varying automated equipment, procedures, and the service approach from provider to provider;
Providers in competition with each other may not cooperate fully on interstate or intrastate cases for which they share responsibility;
The best provider doesn't get all the business, which means that some customers may receive adequate, but not superior, service.

Type of Partners

In establishing the framework for privatization, the type of potential partners must be specified. Are only private sector companies allowed to compete, or is competition open to public and nonprofit agencies as well? This decision will greatly affect the way the RFP is written and the review process is conducted. For instance, if public agencies (including units within the Title IV-D agency) are allowed to bid on contracts, it will be necessary to have an independent third party, such as a public board or state procurement office, review the bids. Rigorous cost-accounting standards will need to be incorporated into the RFP to ensure fair comparisons across sectors.

Some states have taken advantage of incremental privatization to promote public-private competition without actually requiring public units to bid on contracts. Tennessee, Virginia, and Wyoming, for example, are already able to compare gains in collections and paternity and support order establishment between their publicly operated and privatized sites. In Hamilton County (Cincinnati), Ohio, child support cases are divided among three "Strategic Business Units." Each unit provides full Title IV-D services to a region of the county. One is operated by a private contractor and the others by public employees. After a period of competition, the unit with the best results could end up with cases and key workers from the other units.

The latest development in partnering has appeared in Texas. Two state agencies there joined forces with private firms to prepare to bid against each other for the right to determine citizens' eligibility for more than a dozen public assistance programs, including food stamps, Medicaid, and unemployment compensation. A similar type of competition could emerge in child support enforcement with, say, a district attorney's office and its private partners competing against the current child support unit and its partners for a contract to provide all child support services in a local jurisdiction.

DECIDING HOW THE SYSTEM WILL OPERATE

Once the fundamental questions of how to privatize have been addressed, it is time to take a closer look at how the system should operate. Earlier, as part of the decision-making process, it was recommended that the Title IV-D agency develop flow charts showing how the child support program currently operates and how it might be re-engineered to function more effectively in lieu of privatization. Even though the decision has been made to contract out services, it is useful to revisit these charts and use them to develop the basic structure for the privatized service system. Charting the system serves several purposes. It allows the agency to:

produce a map of the system showing which functions will be taken over by the contractor and how these relate to customer flow and the overall program goals;
identify the inputs and outcomes for these functions, including outcomes related to state and federal performance requirements;
specify the roles and responsibilities for the contractor, the Title IV-D agency, and other partners.

In Chapter 4, Figure 4-1 showed the five main components of a local child support enforcement program, including the specific customer-related outcomes to be achieved at each stage in the process. In designing the privatized system, the Title IV-D agency will need to examine each relevant component in more detail. For example, the second step in Figure 4-1 was "Establish Obligation," which involves a whole series of steps taken by a variety of agencies: the child support enforcement unit, the legal unit, the court, perhaps a blood lab or the sheriff's department, and so on. Before writing an RFP to privatize the establishment function, it is necessary to look at all the pieces and identify which ones the contractor will be responsible for.

Figure 6-1

Figure 6-1 shows how the establishment function can be broken down into four discrete processes in a judicial-based child support system. In this case, the objective is to establish as many support orders as possible through negotiation rather than bringing parents to court. The process involves establishing paternity, if this has not been done already; negotiating with the custodial and non-custodial parents to obtain a consent order; if this fails, obtaining a support order through a court hearing; and entering the order into the automated case registry system so it can be monitored and enforced. The diagram labels the inputs and outputs at each stage, and indicates in the oval at top the key public and private partners who must collaborate with the establishment unit in this process.

Figure 6-2

Each of these four processes can be broken down further as shown in Figure 6-2, which is a detailed view of the process for obtaining a support order through the court. In this figure, two of the boxes-petition preparation and process of service-are shaded to indicate functions to be performed by the contractor. Functions performed by other agencies are clearly labeled as well.

With these sorts of diagrams in hand, the Title IV-D agency can see which services the contractor will be responsible for and the types of outcomes for which the contractor can be held accountable. This is a tremendous help in writing the RFP and setting outcome targets and performance standards in the contract. The contractor in this example might be required to prepare support petitions within so many days after failing to negotiate a consent order. There could also be requirements that the petitions be of such quality that only a small percentage are returned by the district attorney or the court for corrections. For the process of service component, the contractor might be required to succeed in getting a certain percentage of non-custodial parents to appear in court without resorting to the use of the sheriff's office.

The important thing to remember in designing the privatized system is that the Title IV-D agency should not go so far as to specify exactly how the contractor is to meet such targets, unless there are specific state or federal regulations that apply. If the contractor is responsible for a function, it is the contractor's job in responding to the RFP to indicate how the service will be organized and delivered.

The diagrams are also useful for identifying the responsibilities of the partnering agencies so that these can be enumerated in the RFP. For instance, Figure 6-2 shows that the district attorney is responsible for reviewing and filing petitions with the court. The court is responsible for scheduling hearings, issuing summonses to be delivered by the contractor, hearing cases when non-custodial parents appear, and issuing arrest warrants when they do not. The sheriff's office is responsible for serving the warrants.

Sometimes as a result of mapping out the proposed system, the Title IV-D agency will recognize a group of interdependent services in which only one or two are singled out for privatization. If dividing responsibilities this way will result in excessive shuttling of customers or paperwork between agencies, it might be better either to not privatize those functions or to assign responsibility for all these related services to a single contractor.

ANTICIPATING THE IMPACT ON THE TITLE IV-D AGENCY

The decision to privatize child support enforcement services not only changes how services are delivered, but it can also have a major impact on the state Title IV-D agency's operations, organization, and budget. The agency must be prepared to devote more resources to facilitating competitive procurement, managing and monitoring contracts, establishing data systems linkages with the contractor, and providing policy support and training to contractor staff. The Title IV-D directors we interviewed who were experienced in privatizing services all acknowledged that they should have dedicated more resources to these activities, particularly contract management and training.

In order to support these activities adequately, the agency itself may need to be reorganized-a usually disruptive and time-consuming process. At a minimum, the agency needs to dedicate some staff solely to the privatization effort. Otherwise, initiatives can flag as staff who have full-time responsibilities in other areas try to incorporate the added duties of developing and overseeing contracts. The Montana child support enforcement administration took a strategic view of privatization and created a Privatization Project Manager position. The manager is responsible for examining, developing, and implementing privatization initiatives. Once a project is fully operational and running smoothly, management responsibility is transferred to another staff member. Title IV-D agencies in states with larger caseloads may need to devote a whole unit to privatization implementation.

The financial implications of the privatization design also need to be thought through carefully. With privatization, the Title IV-D agency will not only spend its money differently-for contracts and contract managers instead of service delivery staff-but it may spend substantially more money than it did before. The agency must consider, for instance, what would happen if a contractor paid on a contingency basis boosts annual collections far beyond levels projected in the contract. How will an agency whose budget is tied to an annual or biennial legislative appropriation pay the bill?

Also, there is the matter of whose dollars will be spent-the state's or the federal government's? Title IV-D is a cost sharing arrangement in which the federal government funds about two-thirds of the costs. In addition, states receive federal incentive payments for exceeding certain goals. Under current regulations, the incentive paid to a state for collections on behalf of non-public assistance (NPA) customers is capped at 115 percent of the incentive amount paid on collections for public assistance (PA) recipients. What happens under a contingency contract with a provider if collections for NPA cases outstrip collections for PA cases? The federal government is protected by the cap, which means that the state pays more of a share for the costs of the NPA collections- unless, that is, it too has somehow capped payments for NPA cases in its contract with the provider. States that have imposed such a cap have found that it creates problems for the contractor and in some ways can defeat the purpose of privatizing. More will be said about this issue in the section on payment and incentive systems in the next chapter.

Finally, federal formulas for reimbursing states' child support enforcement costs are being revised under welfare reform to make the payment and incentive system more outcome-based. Within a few years, states will be required to meet particular targets for paternity establishment, support order establishment, collections, and cost effectiveness in order to earn incentives (U.S. Department of Health and Human Services, 1997). Title IV-D agencies that establish long-term contracts with providers under the current system will need to anticipate in the privatization design the potential impact of these impending changes.

Step 6: Write an RFP that promotes results through partnership

A well-written RFP is the foundation of a solid contract. Often in child support enforcement the actual contract document is merely a one- or two-page form that incorporates by reference the RFP, the winning proposal, and any amendments agreed to by both parties. Therefore, it is important that the RFP describes in detail the purpose of the contract, the contractor's duties, the expected outcomes and deliverables, performance standards, methods for payment and penalty, and the responsibilities of the contractor, the Title IV-D agency, and any partnering agencies.

If the Title IV-D agency indeed views privatization as a public-private partnership, it should make this clear in the RFP. The Wyoming child support enforcement administration, for example, includes in its privatization RFPs and contracts a Partnering Agreement which states in part:

The primary objective of this process is to establish a working relationship which serves our clients and promotes the economic and social goals of the State of Wyoming. This objective is based on mutual trust, honest and open communication, and teamwork. The parties agree . . . to support the mutual strategic goals which plan and implement continuous improvement in services, processes and employee involvement; to promote a cooperative relationship in which conflicts are resolved through negotiation instead of legal remedies; . . . and to be accountable for producing measurable results.

ELEMENTS OF AN EFFECTIVE RFP

Why an RFP?

In competitive contracting, there are two primary methods of soliciting bids and selecting a contractor: through an Invitation to Bid (ITB) process or a Request for Proposal (RFP) process. The first process is commonly used for bidding on general services such as pest control, refuse collection, printing, and street maintenance. According to Taylor and Chmara (1995), an ITB should be used only when the product or service is well-defined and can be specified in detail and when the contract will be awarded solely on the basis of cost. The ITB is not negotiated: sealed bids from bidders who are judged "responsive" (that is, they promise to deliver the services exactly as specified in the ITB) and "responsible" (have the skills, resources, and experience to do the work) are opened in a public meeting. Without any discussion, the award is made to the lowest bidder.

The RFP process, on the other hand, is a negotiated procurement process that provides greater flexibility for the agency and competing contractors. Both sides have more freedom to propose innovations or variations regarding service delivery, price, and payment method. An RFP is the most appropriate contracting mechanism for child support enforcement, where service quality is usually critical, because the scoring criteria for an RFP can place a greater emphasis on quality than cost. It is also a better vehicle than the ITB for developing a working partnership between the Title IV-D agency and the contractor.

Basic Elements of an RFP

Although the procurement office in each state or local jurisdiction has its own requirements for what information should be included in the RFP document and how it should be formatted, there are usually twelve basic elements of a well-written RFP. These are listed in Exhibit 6-1.

Exhibit 6-1

TWELVE ELEMENTS OF A WELL-WRITTEN RFP

Statement of Purpose-the nature and extent of the services to be privatized and the overall objectives of the contract.

Background Information-overview of the child support program (organization and operations); legislative mandates; caseload characteristics and relevant statistics (annual collections, number of payments processed monthly, etc.); relationships with other agencies; descriptions of facilities, automated systems, forms, etc., that contractor will use. An honest accounting of current problems and strengths.

Scope of Work-specific duties to be performed by the contractor and the expected outcomes. These include both program outcomes (more cases with support orders, etc.) and systems outcomes (trained staff, interagency coordination, improved automation, etc.). Also includes a detailed listing of contractor and agency responsibilities, as well as those of partnering agencies.

Term of Contract-length of contract and options for renewal.

Deliverables-list and schedule of all products, reports, and plans to be delivered to the contracting agency.

Outcome and Performance Standards-the outcome targets (amount of support to be collected, paternities established, etc.) and minimum performance standards expected of the contractor, including all federal and state standards. Methods for monitoring performance and process for implementing corrective actions.

Payments, Incentives, and Penalties-terms of payment for adequate performance. Basis for incentives for superior performance and/or penalties for inadequate performance or lack of compliance.

General Contractual Conditions-standard government contracting forms, certifications, and assurances.

Special Contractual Conditions-requirements unique to this contract (for example, size of performance bond or requirement to hire current child support staff).

Requirements for Proposal Preparation-required organization and content of technical proposal and bid; information to be submitted on bidder's technical and corporate qualifications and personnel.

Agency Contacts and RFP Schedule-persons to contact for information on RFP and any restrictions on contacts; dates for submitting questions, pre-proposal conference, submission of proposal, etc.

Evaluation and Award Process-procedures and criteria for evaluating technical proposal and bid and for making the contract award.

The art of writing an effective RFP document lies in carefully considering what the potential contractor needs to know about each of these elements and then presenting this information as clearly, accurately, and completely as possible. There are no unimportant elements.

RFPs FOR FULL-SERVICE CONTRACTS

Full-service privatization is the most complex contracting challenge faced by the Title IV-D agency. The normal demands and difficulties of writing an RFP are compounded because the agency is not only turning over responsibility for many child support services at once, but many times it is turning over staff, equipment, and facilities to the contractor as well. Issues and solutions discovered here are likely to be applicable to other areas of child support privatization. For this reason, it was decided in developing this guide to concentrate on RFPs written for full-service contracts.

Twenty RFPs from twelve states were reviewed. The following sections summarize the major characteristics of the RFPs and discuss some of the lessons learned.

The RFP Document

With a few exceptions, the RFPs issued for full-service privatization contracts have been fairly uniform. An RFP issued in Colorado in 1995 closely resembles Virginia's 1993 RFP, which is strikingly similar to one issued in Tennessee in 1991. This is not surprising, since Tennessee was among the first states to implement full-scale privatization and its RFP document has been widely circulated and used as a model by other states.

These RFPs generally contain the following information with only a few variations due to local needs or circumstances:

Scope of Work

The RFP defines the scope of work by specifying the roles and responsibilities of the state as the purchasing agent and the contractor as the provider of services. The contractor usually is required to provide all, or nearly all, of the following child support enforcement services:

intake,

location,

establishing obligation for financial and medical support,

enforcement,

review and modification of orders,

provision of services in interstate Title IV-D cases, and

customer services.

The RFP also usually lists about 20 state responsibilities and 30 to 35 additional responsibilities for the contractor. (See Exhibits 6-2 and 6-3.)

Background Information

The RFPs typically include an overview of child support enforcement with particular emphasis on the characteristics of the state program and the local office to be privatized. Statistics on caseloads, locations, paternities and support orders established, collections, arrearages, and program costs for the past four to five years are included. The RFPs also provide descriptions of working and legal relationships with other agencies, work facilities, automated systems, telecommunications equipment, and other infrastructure or supply matters as appropriate.

Federal and State Performance Standards and Penalties for Non-compliance

The RFPs always include-either by listing them or by reference-the performance standards for child support enforcement from the Code of Federal Regulations. These standards govern matters such as the maximum number of days allowed for completing intake or locating a non-custodial parent. If the state has established higher levels of acceptable performance, these are noted. The RFP also describes the corrective action process to be used if the contractor fails to meet the performance criteria. This almost always involves using escalating penalties- enforced by withholding 10 percent or more of the contractor's monthly payment-if the contractor fails to submit and follow through on a corrective action plan.

Method of Payment

RFPs for full-service privatization usually specify that the contractor will be paid an amount equal to a negotiated percentage of the total collections. To help defray start-up costs and maintain contractor solvency, contractors are usually allowed to charge a higher rate in the first year, but this rate is gradually reduced over the life of the contract. Reimbursement rates generally range between 10 and 20 percent.

In smaller rural jurisdictions, fixed-price or cost-reimbursement contracts are sometimes used-or the contractor is allowed to charge a higher percentage of collections-in order to offset the higher risks and costs of operating programs in these areas. Some full-service contracts provide bonuses for contractors who exceed established collection goals.

Exhibit 6-2

STATE RESPONSIBILITIES FOR FULL-SERVICE CONTRACTS

The typical contract assigns the following types of responsibilities to the state or local child support agency:

Provide referrals and assistance to the contractor-transmit referrals with all available information regarding the case; provide a state-level parent location service; provide a state-level financial computer system for disbursements; function as the central registry for incoming interstate Title IV-D case requests.
Provide information and direction-furnish prototypes of all forms the contractor will have to use; function as the state information agent in interstate matters; conduct regular contractor's meetings and orientations; provide a program manual and disbursing policy updates to the contractor; consult with the contractor regarding potential settlements affecting the rights of the state and concerning all adverse administrative or judicial rulings.
Monitor and help correct performance-monitor contractor performance through monthly on-site visits; conduct semiannual reviews of cases; issue a letter delineating deficiencies found and requiring a corrective action plan; impose financial penalties for failure to develop corrective action plans; notify contractor whether action plans are acceptable; continue the semiannual reviews while the contractor is out of compliance; impose financial penalties for failure to correct the cited deficiencies.
Reimburse the contractor as specified in the contract-pay the contractor the agreed upon percentage of total collections for the previous month; provide reimbursement for the actual cost of blood testing services.

Exhibit 6-3

EXAMPLES OF CONTRACTOR RESPONSIBILITIES

In addition to specifying service responsibilities for intake, establishment, and so on, the typical contract lists about 30 other things the contractor must do while delivering these services. Some examples include:

abide by the proposal submitted in response to the RFP;
comply with all provisions of federal and state regulations and program instructions issued by the state;
notify the department of various actions taken by the contractor and any changes in procedure;
ensure that all services listed in the contract are available and provided in a timely manner;
develop sound working relationships with the Title IV-D agency and other entities in the child support system;
send staff to required policy and automation training and attend meetings as required;
use the state's automation system and supplement it with additional software and hardware as determined by the contractor;
collect and remit program fees;
establish and maintain case records and adhere to strict standards of confidentiality;
report basic statistical information monthly on caseloads, services and collections;
cooperate fully in any data collection and evaluation activities;
develop and implement corrective action plans if required.

Proposal Evaluation Criteria

For evaluating the proposals, the RFPs typically present a weighting system similar to this:

EVALUATION CRITERIA	PERCENTAGE
Corporate Financial Stability	Required
Organization and Experience	20%
Staff Qualifications	20%
Technical Proposal	30%
Cost Proposal	30%
Total	100%

Weightings vary from state to state, but are generally within 5 to 10 percentage points on each category. Sometimes bidders can gain extra points for subcontracting with minority- or women-owned businesses, for proposed technological innovations, for having strong transition plans, or for the wage and benefits packages offered to current child support employees.

When payment is based on a percentage of collections, the bidder with the lowest proposed reimbursement rate (cost per dollar collected) receives the highest score on the cost proposal. For fixed-price contracts, the lowest bidder earns the best score.

Special Terms and Conditions

Full-service RFPs vary in the special terms and conditions included in the document. Some are included due to unique circumstances in the site being privatized. For instance, the RFP might require the contractor to use the state's facilities and equipment, provide employment referral services to non-custodial parents, or participate in conversion to a statewide automated case record system. Other terms and conditions are added to protect the state and customers from risk or ensure a smoother transition. Examples include requirements that the contractor purchase a performance bond or other type of insurance, have a disaster plan, or train all staff prior to program start-up.

Exceptions to the Standard RFPs

The RFPs from two states-Arkansas and Maryland-stand out from the others in that they set targets for areas such as the rate of paternity establishment, percentage of cases with support orders, and amount of collections for public assistance cases. In Arkansas, these targets are tied to a system of outcome-based incentives and performance bonuses. In Maryland, the targets are set as minimum performance standards. A contractor failing to meet a standard must take corrective action or risk paying a penalty. Both systems will be described in greater detail in the next chapter on developing performance-based contracts.

The Maryland RFP is unique in two other ways. First, it is the only RFP that presents an outcome-focused model of service delivery incorporating the five child support functions described in Chapter 4-intake, establishment, enforcement, collections, and disbursement-and which delineates the responsibilities of the contractor, the Title IV-D agency, and other public agencies in producing desired outcomes for each area. In preparing its technical proposal, the bidder is required to present a plan for implementing the model and to identify anticipated outcomes. The RFP seeks, as much as possible, to let the contractor design the method for achieving outcomes.

The other distinctive feature of the Maryland RFP is its cost proposal evaluation, which seeks to identify the bidder who will offer the greatest return or "net back" to the state. In the net-back method, bidders establish their own collection goals-which must be at or above a minimum target set by the state-and propose a reimbursement rate based on a percentage of collections. The winner of the cost proposal is not necessarily the bidder with the lowest reimbursement rate as is the case with other contingency-based contracts. The winner is the bidder whose combination of projected collections and reimbursement rate will produce the largest net back amount. (Net back = total collections + federal incentives - all costs to the state for collections, including contractor payments.) To protect against bidders submitting inflated collection estimates in order to win the contract, the RFP spells out penalties to be imposed if the winning contractor does not meet its self-determined collection goal.

WRITING AND REVIEWING THE RFP

Usually, the Title IV-D agency assumes responsibility for writing the RFP, although sometimes a government procurement office or consultant may draft major portions of the document. Regardless of who else participates in document preparation, the agency is the expert on the requirements of operating a child support enforcement program and should have lead responsibility for developing the scope of work, even if someone else actually writes this section.

Title IV-D directors and consultants who have prepared RFPs for child support enforcement services offer the following advice on preparing the document:

Dedicate sufficient staff resources to preparing the RFP. Writing an effective RFP is time-consuming, exacting work. All too often, however, this task is assigned to one or two people in the agency who already have full-time responsibilities. The result is that either their regular work suffers or the RFP does not receive the attention it deserves. Writing an RFP also involves asking staff throughout the agency to produce detailed information on caseloads, automated systems, policies and procedures, employee wages and benefits, etc., for inclusion in the RFP document. The Title IV-D director should ensure that staff responsible for preparing the RFP are sufficiently free from other duties so they can concentrate on writing, and that they have the authority to get other departments to produce statistics and program information for the RFP as needed.

Allow enough time for preparing the RFP and obtaining review and approval. The RFP preparation and review process, according to some Title IV-D directors, always seems to take twice as long as anticipated. Depending on a number of factors-including how well the agency had thought through the privatization decision, the type of service privatized, the degree of cooperation and understanding between the agency and the state purchasing authority, and the availability of program statistics-the process took from three months to two years to complete in the sites we studied. If possible, allow extra time for the review and approval process, since this is the area in which most of the delays seem to occur.

Borrow from other states. States and local jurisdictions have gained experience in privatizing nearly every aspect of child support enforcement in recent years. Solicit RFPs from states that have already privatized the function of interest and talk to staff in the Title IV-D agencies to find out what they would do differently if they had the chance to do it over again. Remember, however, that the ability to pull language and ideas from other RFP documents is no substitute for careful thinking about what will work best under the current circumstances. Each RFP must be tailored to meet the unique demands of privatization in the particular jurisdiction.

Take advantage of available contracting expertise both in drafting the RFP and finalizing the contract. Title IV-D agencies, particularly if they have limited experience in contracting out services, should draw on available resources in other government agencies and offices while drafting the RFP to ensure compliance with contracting regulations and avoid potential problems with the successful bidder over contract terms. Departmental lawyers and contracting specialists, staff at the state procurement office, and experienced executive branch personnel can offer advice and counsel based on their experience with other contracts. If other agencies or units must approve the RFP before it can be released, try to get them to review problematic or controversial sections of the document as they are drafted, rather than waiting to submit the entire document for approval. This can speed the review process substantially.

Consider using a consultant to draft the RFP. Using a consultant offers several advantages: Title IV-D staff are not diverted from their regular duties to write an RFP; the RFP usually can be written more quickly; the consultant can bring a neutral point of view to the process and craft a document that promotes public-private partnership; as a frequent respondent to RFPs, the consultant knows what a good solicitation should contain and what will attract qualified bidders. Consultants can be particularly useful in developing RFPs for services such as payment processing in which the solicitation contains considerable technical information. The consultant can ensure that language and phrasing is understandable to bidders and conveys exactly what the agency intends. Even if a consultant is not used to write the RFP, it is often useful to have an experienced outsider from the private sector work with the Title IV-D agency in establishing the contracting objectives and critiquing the RFP document.

If a consultant is used, certain precautions must be taken to avoid even the appearance of impropriety. Most importantly, the consultant should be prohibited from bidding on, or otherwise profiting from, the subsequent contract. The consultant should also be asked to reveal any current contracts or working relationships with potential bidders and be required to sign a confidentiality agreement regarding disclosure of information about the RFP and bidding process.

Supply complete and accurate information about the services to be privatized, equipment to be used, and population to be served. In order to prepare realistic proposals, bidders need to know as much as possible about the program, the customers, and the case statistics. If accurate or complete statistics are not available from current reports, the agency may need to conduct a special study or audit. Try to anticipate everything a bidder would need to know in order to gauge the amount of work involved in the contract and the potential risk. If this information is not included in the RFP when it is issued, bidders will surely request it at the pre-proposal conference or through written queries. The agency may find itself scrambling to gather needed information in a matter of days in response to these requests.

Get input from partnering agencies, potential contractors, and others to improve the RFP. Because partnering agencies-the local social service agency, district attorney's office, district court, etc.-will be directly affected by the privatization contract, representatives from these groups should provide input to the development of the RFP. At a minimum, they need to review the descriptions of their agencies' responsibilities that will be included in the RFP document. A privatization initiative often offers partnering agencies an opportunity to make needed changes in the service delivery model and improve service coordination. Solicit their suggestions for change. In addition, allowing others to review the RFP (or at least the sections pertaining to their agencies) can help assuage their fears about working with a private contractor and promote buy-in.

Another method for improving the RFP is to solicit comments or suggestions from potential contractors and others who have a vested interest in child support enforcement. In the area of mental health, where many regions of the country are moving to a privatized managed care system, it is becoming common to circulate draft RFPs to direct care providers, firms interested in administering services, client advocacy groups, and other interested parties. Comments are solicited in writing or through public forums. A Title IV-D agency may want to consider sharing a draft of its RFP with interested groups or use another method, such as conducting focus groups, to gain their input. If, however, information about the RFP is shared with one potential contractor, it must be made available to all others as well.

Step 7: Manage the Bid Solicitation Process Carefully

John Rehfuss, a business professor at California State University, Sacramento, and author of the authoritative book Contracting Out in Government, has written:

The bidding process should be designed to encourage competition, protect the agency, and clarify expectations for the winning contractor by explicitly spelling out the service specifications desired. As a rule, the bidding system should be open and competitive. (1993)

State and local governments contract out over $100 billion a year in services, yet problems like inadequate or low-quality service, waste of taxpayer money, kickbacks, corruption, and collusion are rare (David, 1988). Nonetheless, even the relatively few instances are sometimes enough to taint all contracting efforts. The best defense against these types of problems is a strong, transparent bidding and monitoring process.

OVERARCHING PRINCIPLES OF CONTRACTING OUT

Openness

David Seader (1995) notes that the first overarching principle of contracting is openness. The public must be able to see that every part of the process is conducted above board. Unfortunately, the RFP process, because it is a negotiated process, is more subject to unethical practices such as collusion and political favoritism than the ITB process discussed earlier. To reduce the likelihood that political contributions will corrupt the bidding process, some states and localities impose rigid restrictions on the political contributions of contractors. An Ohio law, for example, prohibits the award of noncompetitive contracts to almost anyone who has made a contribution of over $1,000 within the past two years to any public official in a position to award a contract.

To minimize the possibility of corruption and unethical practices in awarding bids, Rehfuss (1993) recommends adherence to the principles for open bidding shown in Exhibit 6-4.

Fairness

The second overarching principle of contracting, according to Seader, is fairness. No one provider should have an advantage over another, except in ability to perform the service and in the cost of providing it. Subjecting bidders to different rules or granting special exceptions to some bidders creates unfair competition that may ultimately diminish service quality and shortchange the taxpayer.

The fairness issue is particularly thorny when it comes to public versus private competition. Seader notes that each side has it own natural competitive advantages.

The private provider's advantages are:

economies of scale, especially if it has several contracts for the same service;
access to newer technologies and techniques;
more managerial and operating flexibility to adapt to changing conditions; and
more experience in responding to and operating under competitive conditions.

The in-house or public group, however, has:

more intimate knowledge of the service requirements;
no need to factor a profit into its bid;
possible insider knowledge of how best to position or structure a proposal; and
perhaps more incentive to win, both psychologically and economically.

Exhibit 6-4

TEN PRINCIPLES OF OPEN BIDDING

1. Encourage competition-potential contractors will keep an eye on each other to prevent favoritism, collusion, and cheating.

2. Prohibit public employees from having any financial or other interest in the contract unless they are bidders.

3. Prohibit former agency employees from representing others, such as a contractor, before the agency. Two years after leaving the agency may be an appropriate prohibition period.

4. Only allow bid openings and awards in an open, public meeting.

5. If a bid is awarded on any basis other than the lowest competitive written proposal, publicize the rationale for the decision. Any formal bid analysis should be made public.

6. In setting standards, do not use the specification of anyone bidding for the contract.

7. If the bid is to be negotiated or based on an RFP, prepare a formal explanation of why the agency's interests are best served by the proposed type of bid.

8. Rely on legal counsel throughout the bidding process.

9. Once the bidding process begins, limit contacts with contractors to the negotiation period.

10. Publicize bid awards widely and vigorously and keep a record of the search for contractors and the bid award.

Seader recommends that government agencies adopt the following policies to promote fairness in public-private competition:

Exhibit 6-5

EIGHT PRINCIPLES FOR FAIR PUBLIC-PRIVATE COMPETITION

1. Require a formal, objective, and evenly applied evaluation process. Lowest bid need not be the only criteria for choosing among proposers, but any other criteria should be clear, measurable, and achievable by any party. The proposal preparation process and schedule should favor no party.

2. Establish rigorous cost-accounting for service comparison. The public sector bid should reflect all direct, indirect, and overhead costs of service provision to make it comparable to private sector accounting policies. Give the private bidder credit for taxes and fees to be paid as a result of winning the contract. Include contract monitoring costs for both sectors.

3. Require third-party evaluation of a public bid. An independent public board, commission, or procurement office should verify public cost estimates, bids, and proposals. No public official with a direct interest in the outcomes (for example, the head of an agency whose department is submitting a bid) should be the decision-maker.

4. Pre-qualify private bidders. Use a pre-qualification process to avoid unfair low-balling by unqualified bidders and to avoid selecting firms with conflicts of interest, unsavory backgrounds, or financial shakiness.

5. Eliminate barriers to competition. Don't set up artificial requirements that restrict the private sector's ability to compete-for example, requiring bidders to have the same number of employees, same pay and benefit structure, same job classifications, and same work rules as the public sector.

6. Provide flexibility to public bidders. Limiting the public bidder to the existing way of doing business defeats the purpose of the competitive process. Test the creativity and competitiveness of the public sector.

7. Hold the public to its bid. A winning public bidder should be constrained to live within its budget. Appropriate penalties should be imposed for non-performance. Re-bid early if necessary.

8. Provide opportunities for public employees. Workers who compete effectively should get the benefits of their productivity through bonuses, special perks, gainsharing, and other methods.

MANAGING THE SOLICITATION PROCESS

The Compressed Timeframe

Given the complexity of child support enforcement programs, potential contractors usually have a surprisingly short time in which to prepare and submit their proposals. For full-service contracts, the typical period from the date of RFP issuance to proposal submission is five to six weeks, with some states scheduling the contract signing as little as two months after the issue date. One RFP for privatizing services to non-public assistance cases in a large urban county allowed only five weeks from issuance to signing.

During the proposal preparation period, bidders do much more than write a proposal. They must learn as much as they can about the program and the caseload composition, assess automation needs and compatibility with the Title IV-D system, analyze risks, determine the potential for profit, recruit or assign key staff, develop partnership agreements with subcontractors, produce and package a coherent plan for meeting the contract objectives, and develop a competitive multiyear budget. In some instances, the bidder also must locate and secure acceptable facilities and equipment and produce a plan for interviewing, hiring, and training current public employees.

Bidders are not the only ones who are rushed by short timeframes. From the time the RFP is released until contract signing, the Title IV-D agency must complete most, if not all, of the following tasks:

distribute the RFP to all interested parties;
receive and respond to written questions about the RFP;
conduct a pre-proposal conference for interested bidders;
produce and distribute a transcript of the conference;
distribute any amendments to the RFP resulting from bidders' inquiries;
escort bidders as they visit the program to be privatized;
arrange for bidders to review resumes of current staff whom they might hire;
receive, review, and rank proposals;
check bidders' references
request written clarification of proposal information from some bidders;
hear oral presentations from executives of top-rated firms and perhaps inspect their programs and facilities;
request and review best-and-final offers from the top firms;
recommend a winner to the appropriate decision-making authority, complete with documentation for the recommendation;
negotiate amendments to the proposed contract with the designated winner;
notify other bidders of the impending decision;
respond to inquiries or protests from losing bidders;
participate in a public meeting in which the contract award is made.

The proposal solicitation, preparation, and review process gets compressed for a number of reasons. Often there is a firm deadline by which the service must be privatized. This might be due to a legislative mandate, a federal requirement to have a new service in place by a particular date, the need to award a contract by the end of the fiscal year or before the lease on the current facility expires, and so on. Working back from this deadline, the Title IV-D agency sets a target date for issuing the RFP. If the agency underestimates the amount of time needed to prepare the RFP, cannot get others to supply needed information, experiences delays in getting approvals, puts the RFP on hold to attend to emergencies, or is still spending time justifying the privatization decision, it may miss the issuance target date by a month or more.

Knowing how much time and effort is involved in reviewing proposals and negotiating contracts, agencies that miss the intended date for issuing an RFP frequently try to get back on schedule by reducing the amount of time bidders have to prepare the proposal. Hence, the short response periods. This is a short-sighted practice that can jeopardize the quality of the proposals submitted and in some cases prevent qualified firms from bidding. It is little wonder that the usual first question at a pre-proposal conference is, "Can you extend the deadline for submitting proposals?" It is better to build the original schedule with an extra month or two for RFP preparation and review-or, if necessary, to extend the proposal submission deadline-than to shortchange bidders on their proposal preparation time.

Suggestions for Better Managing the Process

In addition to allowing sufficient time for proposal preparation, the Title IV-D agency can take a number of other steps to improve the solicitation process so that it receives better proposals.

Improve bidders' access to information

The most important information potential contractors will need should be included in the RFP document. But, particularly for full-service contracts and in instances where the contractor is required to hire current staff or use state equipment and facilities, the bidder will need much more information than can be put into a document of reasonable length. Materials bidders may need to review include state and federal child support regulations, policies, and procedures; detailed descriptions of automated equipment; examples of client or financial screens; recent audit reports; building floor plans; copies of all forms to be used; cooperative agreements with other public agencies; information on government pay grades and employee benefits; and resumes for current employees.

Some types of information can be easily reproduced and sent to bidders upon request. Alternatively, information in electronic form can be shipped on disk or posted on an electronic bulletin board. More sensitive information can be kept in a reading room available to bidders by appointment.

Share information earlier

The Title IV-D agency that has privatization as a key component of its strategic plan may be in a position to let potential contractors know prior to the release of the RFP what its objectives are and how it intends to privatize services. San Diego County did this by publicizing its strategic plan for privatizing the administration of mental health services. It also conducted public hearings on its draft RFP. This enabled interested companies to begin working months in advance of the RFP issue date to develop high-quality proposals.

Ensure that bidders are thoroughly familiar with the service to be privatized

If bidders are to submit informed proposals, they must be familiar with how the operation currently works. To impart this knowledge, many Title IV-D agencies have required potential contractors to attend pre-proposal conferences in which the program is thoroughly explained. In addition, bidders have been given hands-on demonstrations of automated systems and allowed to hear from representatives of all the agencies and groups with which they would be required to interact, such as judges, clerks of court, social service directors, and union representatives. When privatization involves taking over operation of a local child support office, it is important that bidders be allowed to tour the facility and observe daily operations.

Pre-qualify bidders

Another strategy that can help speed the process and reduce the burden on the Title IV-D agency is to pre-qualify certain firms as eligible to bid on the contract. The Empire State Development Corporation (ESD), which is overseeing privatization efforts in New York state, uses this method extensively to identify companies that have the experience, reputation, financial resources, leadership, and key personnel necessary to assume operation of public enterprises. In response to a request for information, private firms provide corporate capability statements and references to the ESD, which performs the necessary reference checks and maintains a list of eligible companies. When a decision is made to privatize a particular service, only the pre-qualified companies receive the RFP or ITB. Title IV-D agencies already engage in this practice to some extent when they contract only with blood testing labs that are certified by the state.

One advantage of pre-qualifying bidders is that the work of checking references is conducted in advance-usually more thoroughly than when the agency is under the gun to select a contractor-which can help the agency meet its deadline for awarding the contract. Also, it can reduce the number of proposals to be considered by preventing inexperienced, unqualified, disreputable, and financially unsound companies from submitting bids.

THE PROPOSAL EVALUATION PROCESS

Of all the issues to be considered in the bidding process, the most problematic, and currently the least well resolved, is how to evaluate proposals fairly and select the best contractor for the job. Contractors and Title IV-D directors alike agree that present methods of evaluating proposals place too much emphasis on the proposed cost of service and not enough on factors such as the quality of the service plan, the value of technological enhancements, and the skills and experience of the bidder.

Title IV-D directors blame this problem in part on their having to use state procurement methods developed for other types of services (infrastructure development, maintenance, etc.) and that are geared toward producing low-bid contracts and preventing fraud. In many instances, they have tried to counteract this bias by assigning up to 70 percent of the weight in the evaluation to the technical proposal and only about 30 percent to the cost proposal. But this has not remedied the situation, and the low bid still usually wins the contract.

Contractors point out that this result is due largely to the fact that in responding to the requirements of the RFP they are not able to distinguish themselves sufficiently from one another. Most RFPs specify what the contractor is supposed to do and what performance standards (usually process related) they are expected to meet. As one contractor in a focus group put it, "All we can say in the technical proposal is: 'Yes, I will.' and 'I can do that.' So all bidders get essentially the same technical scores and it ultimately comes down to price."

One of the consequences of this situation, especially for full-service contracts, is that a substantial number of protests have been lodged by losing bidders who felt that they were more highly qualified than the winner, but were low-balled out of a contract. Protests can quickly derail a privatization initiative that is on the fast track. Enough protests have been filed already that one Title IV-D director only half jokingly suggested using a bidder's litigation history as an evaluation criterion.

The real danger of unrealistically low bids-even when the contractor is well qualified, but forced by the competition to underbid-is that eventually service quality suffers. In collections contracts, for example, the contractor must either put enormous pressure on too few staff to work too many cases or quietly begin creaming only the easy-to-work cases and letting large amounts of money go uncollected. There is also the danger that the contractor may go broke as well.

Suggestions for Improvement

What is the solution to this situation? Currently, no one knows. A number of suggestions have been made, however, that individually or in combination may help shift the evaluation emphasis from cost to service quality:

Clearly define the outcomes to be achieved under the contract and evaluate the technical proposals on the basis of how likely each bidder is to achieve these outcomes using the resources and methods proposed. Evaluate cost proposals on the potential return on investment, rather than on cost-efficiency. This was the approach taken in the Maryland full-service RFP.
Use a "best value" procurement method that allows the agency to select the offeror whose proposal offers the best combination of technical features (qualified staff, automation, management innovation, etc.) and cost even though the award may not go to the lowest bidder (Taylor, 1996). However, the agency cannot pay significantly more for slightly superior technical features.
In rebidding situations, develop a fair way of giving incumbent contractors credit for good or superior performance.
Establish minimally acceptable staffing levels or maximum caseload sizes to prevent low-balling and ensure service quality, suggests an agency director.
At the federal level, there is a movement to place less emphasis on sticking strictly to the provisions of the RFP and to allow a greater degree of post-award negotiation to occur between the contracting agency and the provider (Taylor, 1996). This is seen as a means of developing a team or partnering approach between the public and private sectors that could be applied to child support enforcement.
A provider suggests paying all contractors who perform the same function at a reasonable, pre-established rate, but provide incentive payments only to the top performers. This way cost considerations are taken out of the proposal evaluation, and the real comparison takes place where it counts most: in the competitive service arena.
Other contractors suggest moving away from using RFPs altogether and exploring other purchasing options, such as the Title IV-D agency assembling and marketing a business plan to attract private investment in child support enforcement.

Nearly everyone agrees, however, that as long as RFPs are used to select contractors in child support enforcement, the following standards should apply to the proposal evaluation process:

The RFP should place more emphasis on what the contractor is to accomplish, rather than how it is be accomplished.
Cost considerations, while important, should be secondary to technical scores when evaluating proposals.
More detailed proposal review criteria need to be developed and used that can differentiate unacceptable technical proposals from acceptable and superior proposals.
Proposal evaluation criteria, along with their relative weights, need to be clearly stated in the RFP.

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