The Prime Minister says significant change is needed in Child, Youth and Family (CYF), and he's not ruling out more of its responsibilities being shifted to the private sector.
Mr Key said the private sector was already involved in some of Child, Youth and Family's provision of care for children.
While the Labour Party has said privatising parts of Child, Youth and Family would be absolutely wrong, the Prime Minister said that total privatisation of the agency was "reasonably unlikely".
"Child Youth and Family does outsource to the private sector already some contracts, and I think last year $81 million of business went to private sector contractors, so I can't get up and say there is no involvement with the private sector, because there already is that.
"I don't think we're seriously talking about the private sector taking control of all the children, but if there is some small function they could do, maybe, I'd have to see what that is."
Mr Key said support for the most at-risk children was likely to stay in Government control, but some adjunct parts of it may be handled by the private sector.
A damning report from the Children's Commissioner released last week found systemic problems within the service and questioned whether children were better off in state care.
Structural overhaul to follow review
Mr Key told Morning Report today the agency would undergo a structural overhaul following a review by the senior public servant Paula Rebstock.
With CYF receiving about 150,000 calls a year, Mr Key said the review would look at the way resources were used.
"Within CYF, there are a lot of people doing a lot of good work, but to me the structure isn't quite right."
He said Ms Rebstock's report would be far-reaching .
"She has a ferocious mind and is willing to drive change, she's not a shrinking violet saying, 'I don't think we should look at this because historically it's been quite difficult to deal with'."
But the Association of Social Workers said privatising some of Child, Youth and Family's functions would create more problems for the service, and it fears any contract would be given to Serco.
In June, Social Development Minister Anne Tolley said she had no problems with companies like Serco picking up social service contracts, despite it coming under criticism for its running of Mt Eden prison
Executive officer of the Association of Social Workers, Lucy Sandford-Reed, said she suspected the call centre would be the first function to be outsourced.
"That really creates an opportunity for further fragmentation of the service delivery and could potentially create the opportunity for failure. And there has been a sense that a organisation like Serco could be looking at picking up those contracts."
Jude Pointon and her husband have permanent care of two young wards of the state, as well as looking after their own child, in Porirua.
She said privatising parts of CYF could exacerbate existing communication problems.
"It's very important in such a heightened emotional environment that communication is very clear so things don't fall through the cracks, and everything that needs to be done is done as quickly as possible," she said.
A lecturer who trains social workers at Unitec, Peter Matthewson, said the idea of privatising some of Child, Youth and Family's functions could work.
"Non-Government involvement in family and child welfare is nothing new and pre-dates the state's involvement in those areas," he said.
The possibility of private sector involvement was also criticised by other political parties today.
Opposition parties call for more government support
Labour's spokesperson for children, Jacinda Ardern, said the Children's Commissioner's report made it clear the organisation needed more support from the Government, not less.
"This is a department that is severely under-resourced and under-supported - that's what needs to be fixed.
"There is no reason for the Government to go for the nuclear option that I have severe concerns it would lead to poorer outcomes for children," Ms Ardern said.
Green Party social development spokesperson Jan Logie said Child Youth and Family needed more resourcing and a major shake-up of the systems social workers were using.
But Ms Logie said the private sector had no place in the protection and care of New Zealand children.
"We have no evidence that injecting a profit making motive into core essential services, will improve our services," Ms Logie said.
New Zealand First said privatisation was not the answer to the problems at Child, Youth and Family.
Leader Winston Peters said the Government had had seven years to fix the problems at Child, Youth and Family, but instead had underfunded it, meaning it was now much worse.
Mr Peters said he was particularly worried about the possibility of its call centre being outsourced.
He said Child Youth and Family needed to be properly funded and better resourced.