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.In thissubsection, we consider the evidence on how performance incentivesalter the subcontracts that agencies make with their subcontractors, andhow performance-based contracts affect the performance of providers.As elsewhere, the literature we survey draws primarily on theexperience of the JTPA program.Performance-based contracting hadan interesting history under JTPA.20 Initially, SDAs that entered intoperformance-based contracts for training were able to exceed the 15percent limit on administrative expenses in JTPA if the contract met Oleary training.book Page 42 Friday, September 17, 2004 8:56 AM42 Barnow and Smithcertain provisions.By the late 1980s, a number of concerns surfacedabout the use of performance-based contracting.As enumerated inSpaulding (2001), USDOL was concerned that states were not effec-tively monitoring their performance-based contracts (PBCs), that totalcosts billed under PBCs were not reasonable, that SDAs were usingPBCs for activities that contained little if any training, that contractsdid not include the performance measures required by law, that pay-ment schedules either eliminated contractor risk or built in high profitlevels, and that profits were sometimes used to establish economicdevelopment loan funds, which was prohibited.The Department ofLabor issued a series of guidance letters in the late 1980s intended toreduce the use of PBCs.In a series of papers, Heinrich (1995, 1999, 2003) examines thecontracting behavior of a JTPA SDA in Cook County, Illinois.21 Shefinds that this site passed along its performance incentives to its serviceproviders through performance-based contracts.These contracts oftenincluded performance levels in excess of those facing the SDA itself,apparently as a form of insurance.Even if some contractors failed tomeet the (inflated) standards in their contracts, most would, and so theSDA would meet its own overall standards despite a few subcontractorfailures.Heinrich (1995, 2003) found that at this SDA, which had tech-nical resources that most other SDAs did not, caseworkers and manag-ers were keenly aware of how they and their subcontractors were doingrelative to their performance standards throughout the program year.This was particularly true of the cost-per-placement standard.Heinrich(1999) shows that subcontractor performance in one program year rela-tive to the cost-per-placement standards in their contract affectedwhether or not they were awarded a contract in the next year.Now consider the studies that examine the effects of performancebased contracting on subcontractor behavior.Dickinson et al.(1988)performed some analyses looking at how the use of performance-basedcontracting affected the mix of participants in JTPA.They found that,contrary to their expectations, the use of performance-based contract-ing was associated with a statistically significant increase in services tominority groups, and had no effects on services to welfare recipients,females, older workers, or individuals with other barriers to employ-ment.Dickinson et al.(1988) also analyzed the impact of higher wageat placement provisions on participants served, and found that they led Oleary training.book Page 43 Friday, September 17, 2004 8:56 AMPerformance Management of U.S.Job Training Programs 43to a reduction in services to welfare recipients; estimated effects onother hard-to-serve groups were also negative but not statistically sig-nificant.Heinrich (2000) focuses primarily on the relationship betweenorganizational form (for-profit or nonprofit) and performance, but shealso explores the effects of having performance incentives in providercontracts.She finds, for her study of an Illinois SDA, that inclusion ofperformance incentives has a very strong positive effect on realizedwages and employment at termination and up to four quarters follow-ing termination.Similarly, Spaulding (2001) analyzed the effect of per-formance-based contracting in JTPA programs on the performance ofSDAs in program year 1998.Her results indicate that the use of perfor-mance-based contracting is generally associated with higher outcomes.Overall, the literature makes two things clear.First, local trainingprograms sometimes pass along the performance incentives they faceto their subcontractors, perhaps with something added on as insurance.Second, performance-based contracts yield higher performance on therewarded dimension.Strategic Responses to Performance IncentivesIn addition to the substantive responses to performance incentivesconsidered above, in which training centers changed what they actuallydid, training centers can also attempt to change their measured perfor-mance without changing their actual performance.We refer to this as astrategic response, or as gaming the performance system.Regardlessof their differing goals, all types of organizations have an incentive torespond strategically to performance incentives, provided the cost islow, as doing so yields additional resources to further their own goals.The literature provides clear evidence of such gaming behavior underJTPA.One important form of strategic behavior under JTPA was themanipulation of whether or not participants were formally enrolled.Under the JTPA incentive system, only persons formally enrolledcounted towards site performance.In addition, for the first decade ofJTPA s existence, SDAs had substantial flexibility in regard to whensomeone became formally enrolled.Clever SDAs improved their per-formance by basing enrollments on job placements rather than the initi- Oleary training.book Page 44 Friday, September 17, 2004 8:56 AM44 Barnow and Smithation of services.For example, some SDAs boosted performance byproviding job search assistance without formally enrolling thosereceiving it in the program.Then, if an individual found a job, the per-son would be enrolled, counted as a placement, and terminated, all inquick succession.Similarly, SDAs would send potential trainees toemployers to see if the employer would approve them for an on-the-jobtraining slot; enrollment would not take place until a willing employerwas found.There are two pieces of evidence regarding the empirical impor-tance of this phenomenon.The first is indirect, and consists of the factthat USDOL found it enough of a problem to change the regulations.Specifically, in 1992 USDOL required that individuals becomeenrolled once they received objective assessment and that they count asa participant for performance standards purposes once they receivedany substantive service, including job search assistance.22The other evidence comes from the National JTPA Study [ Pobierz całość w formacie PDF ]