Welfare changes spark interest from businesses Firms vie for contracts to run programs at state, county levels

The new welfare law is still a matter of confusion in statehouses and city streets. But to some companies, it already looks like the business opportunity of a lifetime.

The players are as diverse as Electronic Data Systems, the $12.4 billion information-technology company that Ross Perot founded, and companies at least a thousand times smaller like Curtis & Associates, which supplements its successful welfare-to-work jobs clubs with accessories like "motivational fortune cookies" at $3.99 a dozen. A sample message is, "The way to control your future is to work hard today."


The newest and most formidable entrant in a field once left largely to local charities and several small companies is Lockheed Martin, the $30 billion giant of the weapons industry. A nonmilitary division, Lockheed Information Services, is bidding against Electronic Data Systems and Andersen Consulting to take over $563 million in welfare operations in Texas.

And that is only the beginning, Lockheed executives say. Having hired two longtime federal welfare employees and top officials from Texas, Oregon and Alabama, the corporation plans to market even more comprehensive welfare contracts to states and counties in what is potentially a new multibillion-dollar industry to overhaul and run welfare programs.


"We're approaching this marketplace the way we approach all other marketplaces," said Holli Ploog, senior vice president of business development at Lockheed Information Services.

It is a market that expanded overnight when President Clinton signed a law to replace the 60-year-old guarantee of federal aid to poor children with lump-sum grants to the states.

Fixed-price contracts

To state and county officials facing capped welfare budgets and financial penalties if they fail to move most recipients into jobs in two years, a fixed-price contract with a corporation has a strong appeal.

For the first time, the law allows states to buy not only welfare services but also gatekeepers to determine eligibility and benefits.

"There's some easy money if the states aren't careful," said Robert Tyre, head of the government contracts division of Andersen Consulting, a $4.2 billion sister company of Arthur Andersen, the accounting firm.

The jockeying frightens longtime social-service workers and public-interest lawyers. No company can be expected to protect the interests of the needy at the expense of its bottom line, least of all a publicly traded corporation with a fiduciary duty to maximize shareholder profits, said Henry A. Freedman, executive director of the Center on Social Welfare Policy and Law, a research and advocacy law office.

If a gatekeeper's profits are linked to reducing the welfare rolls, Freedman said, the incentive to deny aid will be overwhelming.


But proponents say turning over welfare to the private sector will prove to be the most cost-effective and humane way for states to face up to the fiscal imperatives of the new law. A profit-making company has the flexibility to reward employees for results, the proponents argue, and to change the culture of the welfare office from one focused on calculating deprivation and issuing checks to one that helps people into jobs.

Slowness equals less money

States that are slow to shrink administrative costs will have no money for the additional child-care and transportation spending that are needed to move recipients to work. With the clock ticking on a five-year lifetime limit on benefits, recipients are ultimately the ones who will pay the penalty for delay.

"The days of spending any amount on welfare and going to the federal government for a match are over," said Russell Beliveau, president of the Government Operations Group of Maximus Inc., a consulting company in McLean, Va., that had $100 million in business this year, including $7 million in welfare-to-work programs in Boston; Fairfax, Va.; and two California counties.

"If they don't perform, they're going to have to overspend," Beliveau said. "If they underspend, they can find other uses for that money. I've been telling states this is the golden opportunity to turn to private companies for a risk- and profit-sharing arrangement."

In Texas, Health and Human Services Commissioner Michael McKinney said states would receive their money's worth if they wrote contracts correctly.


Texas is revising its request for offers to combine, overhaul and run the separate systems that now determine eligibility for welfare, food stamps, Medicaid and more than 25 other programs. Lockheed has teamed up with IBM and the state's work force commission, offering a fixed-price contract with penalties for failures to perform.

Electronic Data Systems, which has long designed computer systems for welfare and Medicaid, is collaborating with Unisys and the Texas Human Services Commission. A third bid will come from Andersen, which offers to take a percentage of the savings it achieves as its only fee.

Like Wisconsin, where similar bidding is under way county by county, Texas is seen by many as the forerunner of a new wave of privatization. Until now, churches and groups like Goodwill Industries had been the main competition for the three companies in the welfare-to-work niche: Maximus; Curtis, which began as the pet project of a communications professor in Kearney, Neb.; and America Works, a $7 million job broker with contracts in New York City, Albany, N.Y., and Indianapolis.

Pub Date: 9/15/96