- The Washington Times - Monday, August 14, 2000

Many government contractors build things jet fighters, submarines and computer systems, for example. Maximus Inc., a McLean-based company that works with state and local governments, builds people's lives.

It helps welfare recipients get jobs. It helps single parents get the child support they are due. It enrolls Medicaid patients in managed-care programs. It helps poor children get health care.

This niche in health and human services remains relatively unmined by government con-tractors, though there is plenty of money to be made.

"It's not as glamorous, it's not as profitable and you get the political fallout," Maximus Chief Executive Officer David V. Mastran says in explaining the dearth of competition.

But the work other companies scorn has made Maximus a success.

To be sure, there are political battles and other problems for Maximus. The state of Wisconsin, where the company runs a welfare-to-work program, is auditing two previous, related contracts for possible improper billing. Maximus has admitted some of the charges were mistakes and paid the state back, says spokeswoman Rachael Rowland.

There's a lot of money to be made in the government market, but there's a lot of risk and politics, she adds.

The fast-growing firm has been profitable for each of its 25 years. It holds more than 4,000 contracts in nearly every state. Its 3,900 employees include about 300 in the Washington-Baltimore area.

States spend $24 billion per year to administer $300 billion in Medicaid, food stamps, welfare and other social-service benefits, according to Maximus. Only 8 percent of this work is outsourced, and more is likely to follow, Mr. Mastran says.

Yet only a handful of players including Lockheed Martin Corp.'s IMS unit, Electronic Data Systems Corp. and local nonprofits compete for this growing business.

"People are starting to realize it's a good marketplace. We're starting to see more interest in this sector," said analyst Thomas Meagher, vice president of BB&T; Capital Markets in Vienna.

Locally, Maximus says it has completed 15 projects worth $10 million to help the District of Columbia improve its welfare program, computer systems and other areas. It runs welfare-to-work programs in Montgomery and Prince George's counties. It used to run one in Fairfax County and just won a contract to run one in the District.

Several factors are behind Maximus' rise. Federal legislation has created new programs for states to run, including a welfare overhaul that limits benefits while urging recipients to get jobs and a health insurance program for poor children who don't qualify for Medicaid.

Governments are reluctant to build new bureaucracies to run these programs, says Mr. Mastran, 57, a Northern Virginia native who founded Maximus in 1975. So they outsource them, along with existing troubled programs, such as child support enforcement.

"It's hard [for governments] to say someone else can do it better," Mr. Mastran says, but the bottom line is quality public service.

Maximus' chief selling point is that it beats government at its own game by running programs more effectively and cost-efficiently.

"Government is a monopoly," Mr. Mastran says, with operations and attitudes based on spending money, not making it.

In contrast, private-sector firms like his must earn their daily bread by running programs well, meeting performance goals and staying on budget.

"We're able to do a better job because we're accountable. If we don't do a good job, we're gone," says Mr. Mastran, an Air Force veteran and former defense analyst who oversaw social-service research projects during the early 1970s for the old Department of Health, Education and Welfare.

In welfare-to-work programs in 25 states and counties, Maximus says it has placed more than 80 percent of 290,000 recipients in jobs. Once hired, the company moves quickly to rent space, install computer systems and hire a project staff. Unburdened by bureaucratic procedures, Maximus can buy equipment and hire and fire employees more quickly than its government clients.

Often it hires government employees at higher salaries. Even in this labor-tight economy, "we don't have any problem recruiting. There's no shortage of people in government who want to work in the private sector," Mr. Mastran says.

"The government has a very difficult time retaining people, particularly in [technology] systems, because the private sector pays so much better.

"About 60 percent of Maximus' $320 million in annual revenues comes from its "government operations group," which runs state and local governments' social-welfare programs. Another 30 percent comes from executive searches, financial consulting and other management services.

The rest is derived from a small information-technology (IT) arm, which designs and builds computer systems and "e-government" applications.

The company went public in 1997 at $16 per share; it has recently traded between $20 and $28 on the New York Stock Exchange. Maximus' stock rose six cents Friday to close at $22.88.

Mr. Mastran is the largest individual shareholder with a 19 percent stake. Currently, Maximus' largest contract in the region is a $42 million, three-year contract with the state of Maryland to run child-support enforcement pro-grams in Baltimore City and Queen Anne's County.

It took over the program in November from Lockheed Martin, which had run it for three years. The state privatized the program as the result of welfare-reform legislation passed in 1995, said Louis Curry III, executive director of child support enforcement for the Maryland Department of Human Resources.

Maximus' main job is to help parents collect the child-support money they are due from their former partners. The work involves locating noncustodial parents, establishing paternity, obtaining court orders for support and getting deadbeats to pay up.

As of July 31, Maximus had collected $49.6 million in child-support payments, more than three-quarters toward its first-year goal of $63.5 million, said Dwayne C. Brown, the company's Maryland project manager. So far, it's met three of five state performance goals.

"We inherited a very tough caseload. There were a lot of things wrong with the program when we came in. It takes a while to see progress," says Mr. Brown, a former state of Florida employee who ran similar projects for Maximus in South Carolina and Atlanta.

But getting the money is just part of the job. As in other cities, Maximus has heavily emphasized customer service.

"We've changed the entire environment of the intake process," Mr. Brown said. The company fixed up the lobby of its Baltimore office with new carpet, paint, windows and blinds. It reduced waiting times for clients to see caseworkers to 15 minutes from, in some cases, two to three hours.

It's all part of changing the culture of how government deals with people in dire straits, Mr. Mastran says.

"The welfare office is often a place of depression. One of the first ways to break that connection is to put people in a different place," he says.

In Baltimore, "in general, people are pleased at the service they've been getting," Mr. Curry says.

One of them is Cyndi Kauffman, a divorced mother of two who had been seeking child support from her ex-husband since 1993. Before, her calls got no results. Her file was lost. In January, things changed for the better.

"My checks are coming in now. I get two checks a week. They return my calls right away. If I write letters, I get a response," says Ms. Kauffman, 38, an office manager who lives in Baltimore.

As required by contract, Maximus hired 85 former state employees for its 235-member project staff. It oversees caseloads of 143,000 in Baltimore and 1,200 in Queen Anne's County.

Maximus isn't always perceived as a do-gooder, though.

Part and parcel of its work is opposition from labor unions that fear job losses resulting from privatization and the crossfire of local politics. The sensitive, people-touching nature of its work seems to draw criticism.

Welfare-to-work programs have proven especially vulnerable to attack. Although they represent just 15 percent of Maximus' revenues and 6 percent of its profits, they account for 95 percent of its litigation, Mr. Mastran says.

"It's an area we're thinking of easing away from, he adds.

In New York City, Democratic Comptroller Alan G. Hevesi in March rejected two welfare-to-work contracts, worth $103 million over three years to Maximus, citing irregularities in the contracting process and inaccurate disclosure on forms submitted by the company.

Mayor Rudolph W. Giuliani, a Republican, sued Mr. Hevesi to force the contract awards.

Mr. Mastran says Mr. Hevesi's charges are "trumped-up stuff" and portrays the dispute as a political battle between the comptroller and the mayor. He denies any contracting violations, saying Maximus' pre-bid meetings with city welfare officials were proper, and that the company clearly disclosed its relationship with Opportunity America, a proposed subcontractor.

Opportunity America is headed by a former Giuliani adviser, according to Mr. Giuliani's appellate brief. A state court in April sided with Mr. Hevesi, ruling that the contracting process had been "corrupted" because Maximus enjoyed an "unfair advantage" over other vendors and misled the city about the role of Opportunity America, the brief says.

However, the court also found that Mr. Hevesi legally should have awarded the contracts. The mayor has appealed the decision to the New York Supreme Court.

Mr. Mastran says such political wildfires come with the job, but that Maximus' bread and butter will continue to come from the program-management business, where revenues are growing 25 percent to 30 percent per year.

Revenues on the management consulting and IT sides, which have developed largely through acquisitions, are growing at about 15 percent to 20 percent per year, he adds.

Despite lots of competition, the IT side of the business is worth pursuing because it helps make Maximus an end-to-end provider of services for state and local governments, Mr. Mastran says.

According to analyst Mr. Meagher, this front-end, "government-to-constituent" IT work will help the company keep and win contracts and avoid direct competition with larger companies that focus on back-end systems integration.

On the political side of things, Mr. Mastran says, "it really doesn't matter" if the next president is a Democrat or Republican. The Democratic presidential nominee, Vice President Al Gore supports competition in government, and "we have done very well under the Clinton/Gore administration," he says.

But the GOP presidential nominee, George W. Bush also supports privatizing government functions and has urged a lot of it as the governor of Texas, he adds.

Either way, Maximus seems to win.

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