Critical to the success of initiatives to reform and restructure educational and community services to improve the lives of children is the way in which they are financed. This report explores the movement toward privatization through contracting in managing, financing, and delivering child and family social services and provides a conceptual basis to inform efforts to improve practical models. The report synthesizes the state of knowledge in the area, defines and frames privatization and various contracting models, identifies relevant issues, examines the advantages and disadvantages of these approaches, and highlights examples that enhance understanding of contracting practices. Following an introduction defining privatization, the report provides a historical overview of the privatization of social services. Three major contracting models--purchase of service contracting, managed care, and network contracting--are discussed, and advantages and disadvantages explored. The report notes that although scholars continue to debate privatization, administrators take it as a given and are interested in how to contract well. The report concludes that four developments in the social services field are converging, with potentially major consequences for child and family social services: (1) change in the locus of service delivery, leading to the use of purchase of service contracting; (2) a change in social service delivery models, increasingly stressing community-based rather than residential services; (3) a change in child welfare service delivery, emphasizing maintenance of children at home; and (4) a change in financing, stressing flexible and pooled rather than categorical funds. Contains 74 references. (KB)