The actions of those working in the social services system are shaped by the incentives they face. Incentives often flow from rules and customs that constrain and influence the conduct of ministers, government
20 Submissions 5, 7, 11, 32, 41, 49 and 112 all refer to this problem.
officials, providers and clients. Rules include formal and enforceable rules (such as regulatory requirements and contractual provisions) and informal rules built on social and cultural norms of behaviour.
The social services system will work best when the incentives created by these rules are strongly aligned to improving the outcomes that matter – in terms of the wellbeing of clients and the wider community. There are areas of the social services system where this alignment is not as strong as it needs to be.
Incentives from the political environment
Ministers operate in a highly contested and adversarial environment. This environment can crudely be described as one where:
the opposition is committed to discrediting the Government so as to replace it at the next election;
the Government is determined to stay in power; and
politicians want to get re-elected.
The New Zealand Treasury noted:
The need to win elections leads politicians and their parties to develop a very good understanding of the factors that drive public opinion. Media exposure is “political oxygen”, mainstream media analyse the politics and not the policy of an issue, and the media require instant reactions and ready sound bites. Consequently, Ministers feel the pressure to:
respond quickly and decisively to the latest risk, accident or misdeed;
commit to concrete action, even without evidence that the action will address the problem, or that benefits are likely to exceed costs;
stick to a political commitment once made; and
deliver on the commitment as soon as possible. (2011, p. 10)
In such an environment, government contracts are under persistent scrutiny by groups with an interest in discrediting government policies. The threat of opportunistic scrutiny provides a strong incentive for governments to use contracting approaches that minimise political risk – such as highly specific contracts and rigid performance reporting (Moszoro, Spiller & Stolorz, 2014). The threat of opportunistic scrutiny also prompts government agencies to offer contracts of short duration and works against relational
contracting.21 Providers often interpret these phenomena as indicating that the agencies do not trust them.
The risk of opportunistic scrutiny and criticism of government programmes also inhibits governments from subjecting the programmes to robust evaluations.
Chapter 2 noted there is too little innovation in social services both among providers and within government agencies.
One reason for this is that contracting-out models that involve short, tightly specified contracts create little room or incentive for providers to experiment, or to share and adopt innovations. This is particularly the case where experimenting would mean providers investing in assets, relationships, personnel or processes that are specific to their current contracts. If the lengths of these contracts are short, providers have limited assurance that they will be able to recover their costs should the Government choose not to renew them.
Figure 4.1 shows data on the length of Ministry of Social Development (MSD) contracts for services in 2014/2015. Little contracted expenditure is on contracts longer than 3.5 years, and 46% is on contracts of less than 2.5 years.
21 Relational contracts, as used in the private sector, rely on informal agreements and self-enforcement based on the parties agreeing to contract variations without formal renegotiation or litigation (Chapter 12).
Figure 4.1 Percentage of MSD contracted-out expenditure in 2014/2015 by contract duration
Source: MSD contract databases; Productivity Commission.
These issues are not new. In 2001, the Review of the Centre identified “Risk aversion due to the political cost of failure” as an impediment to better frontline services (p. 15). The review noted that “[t]here are inherent features of the State Sector that discourage innovation (eg, high political cost if risky innovation fails)” (p. 16).
More recently, the Better Public Services Working Group found that:
…in the New Zealand state services, innovation is being stifled by a lack of capability, an undue degree of risk aversion on the part of chief executives, boards, and Ministers and little consideration of how to manage risk in this context. (2011, p. 20)
In addition to political risk, the behaviour of officials can be heavy influenced by:
accountability for allocated budgets rather than the total costs to government and the wider public; and
incentives to manage costs rather than value.
F4.2
Accountability and delivery structures within government agencies place a high emphasis on managing costs and political risks. This can result in a lack of focus on value, and in highly prescriptive contracts that work against innovation in services.The highly prescriptive contracts that government agencies tend to offer providers also limit the discretion of providers to tailor services to the individual needs of clients – even when this would be in the interests of the client and consistent with the outcomes sought by agencies.
Birthright New Zealand noted:
Contracts between Government agencies and providers are typically tightly prescribed and do not recognise the dynamic situations of the families we work with. The Growing Up in New Zealand longitudinal study report which focusses on vulnerability highlights the rate at which family
2.21%
5.65%
45.32%
25.16%
20.87%
0.79%
4.6 years - 5.5 years 3.6 years - 4.5 years 2.6 years - 3.5 years 1.6 years - 2.5 years 0.6 years - 1.5 years <0.5 years
circumstances may change. To ensure that services can be targeted to address need, contracts need greater flexibility. In some instances, longer term interventions may be required for children and families whether this is due to chronic health conditions or complexity of need. Contracts with providers should reflect that they are best placed to assessand identify how available resources are best
matched to client need. (sub. 128, p. 4)
This view is echoed in a report by the New Zealand Treasury (2013).
…accountability from the purchaser to the provider for the contracts and funding is still primarily based on volumes, inputs and outputs. Highly specified contracts are an important form of risk management for government in industries where there is great uncertainty about the outcomes, such as supplying social services to clients who may not agree they have problems they need to address. It gives some ability to identify and manage poor performance by agencies where this is captured by the measures used. However, when the level of specification interferes with the delivery of the service, there may be a case to rethink if contracted delivery is the best way of supplying the service. (p. 17)