In 1975, David Mastran started a government outsourcing firm, Maximus, in his basement with $12,000. Company revenue roughly doubled every year for the first six years, and in 1980 Maximus pulled in $3.5 million.
But it wasn't fast enough for Mastran.
"I thought the growth was slow," he says. "The need is so great, but the government is slow to change."
Mastran, the company's chief executive, can't complain about slow growth anymore. With contracts in all 50 states and even a few other countries, McLean-based Maximus had $244 million in revenue last year and $15.5 million in net income. It has averaged a 24.9 percent annual return on capital over the last three years, and Business Week recently ranked it the 22nd "Hottest SmallCap Company."
As Mastran notes, the need is great, and it's growing for his company, which oversees welfare-to-work, Medicaid, child-collection support and other social services for government. The reason: the Welfare Reform Act of 1996 that gave states more power in running welfare programs, but required that they keep data on job placements and new hires.
"States had to put in their own computer systems," says Bill Loomis, an analyst with Legg Mason Wood Walker Inc. in Baltimore. "Some have done that internally, some have hired companies to do it, and some have completely outsourced -- that's the market Maximus is in. They actually hire the caseworkers, do the job assessment and training."
"We can do the whole thing," says Mastran, 56.
One such project was in Fairfax County, where Maximus inherited a caseload of about 900 welfare recipients in 1996. By the time the contract expired this past June, the number had been reduced to about 450, says Ann Osborn, project manager for the Fairfax County Department of Family Services, who oversaw Maximus's work for the county.
"They were very helpful in partnering with our own staff," Osborn says. "They were very flexible in the three years, based on the changing needs of the clients."
The county did not renew the contract this year because the caseload had been reduced enough for it to be handled internally, Osborn says.
After serving for seven years in the Air Force, including one year in Vietnam, Mastran went to work for the Pentagon and then, in 1973, for the old federal Department of Health, Education and Welfare. With an analytical mind shaped by his military background and a doctorate in operations research from George Washington University, Mastran says he was able to bring more efficient administration and better management reporting to the department.
But Mastran could only accomplish so much within the bureaucracy of the federal government. "I decided I couldn't fix this from the inside" and left to work for the consulting firm of Arthur Young, he recalls.
After only a few months, Mastran went off on his own.
A key moment for Maximus came in 1984, when the company won a contract to reduce welfare fraud in New York City. The Texas-born Mastran spent a lot of time in Harlem.
"It was shocking how desolate those centers were at the time," he says.
Mastran started a motivational campaign for welfare workers, including cake and trophies for workers who reduced fraud. "It was like bringing water to the desert," he says. "They just needed assistance and they blossomed."
The experience reinforced Mastran's belief that the private sector can motivate employees better than the government.
"Government workers are not paid on the basis of performance," he says. "I can reward performance; government can't do that."
Maximus's work has not gone without controversy. Unions usually object to privatizing government services, and when the company was awarded a contract in 1988 to handle the welfare-to-work program in Los Angeles County, a public employees union sued Maximus.
The company ultimately prevailed in court, but in 1993 the county's board of supervisors voted not to renew the contract.
The D.C. government recently signed a similar agreement with Maximus after a 15-month delay that could cost the city tens of millions of dollars in uncaptured federal funds for local social service programs.
In Maine, Maximus has helped the state government collect about $50 million in federal funds over the last four or five years, says Peter Walsh, the state's deputy commissioner of human services.
"They've done very well -- we're very pleased with the relationship we've had with them," says Walsh. "It's a pretty complex process to figure out what's eligible for federal funds."
Among other things, Walsh says, Maximus has helped Maine determine the Medicaid-eligibility of some children in the state.
"We try to make sure that if a program or a service or client is eligible, we capture those federal funds," says Walsh. "Maine is the 36th state in per capita income -- it's a poor state.
The company's growth since the Welfare Reform Act has also coincided with Maximus's changed status -- it went public in 1997. Mastran says he decided to go public after "a major blue-chip company" -- which he declined to name -- offered more than $100 million for Maximus. The offer was generous, but Mastran says he didn't want to become part of a huge conglomerate.
"Our motto is `Helping government serve the people,' " he says. "That's still my intent. Their mission was not humanitarian, and I didn't know where that would lead, and what we'd turn into."
That's not to say that Mastran's is a humanitarian mission, but he could have gotten fabulously wealthy by accepting the offer. With 54 percent ownership of the company at the time, he would have pulled down more than $50 million. He now owns 20 percent of the company, which is currently valued at $696 million.
Says Mastran, "One of our people once said to me, `You're a Democrat and a Republican. You're a Democrat because you like to help people, and you're a Republican because you make money doing it.' "