ON THE PERFORMANCE OF COMPETITIVELY TENDERED, PUBLIC SECTOR CLEANING CONTRACTS

Quantitative analysis of competitive tendering and contracting typically focuses on their effect on the cost of providing public sector services. In this article we turn to the systematic factors that appear to influence the performance of cleaning contracts. This is defined as compliance with contract specification, public perception of service quality and other qualitative measures of service characteristics as observed by the contracting authority. Our analysis attempts to isolate particular features of contract design, monitoring and enforcement that influence performance positively or negatively. Econometric results based on a sample of public sector cleaning contracts suggest that contractor selection procedures and contract enforcement mechanisms have the greatest influence on performance.     

The Effect of Formal and Informal Contracting Mechanisms on Implementation Performance in the U.S. Federalist System

The relationship between contract management capacity and implementation success in local government contracting is well established. However, less is known about how specific contract mechanisms are linked to this success. This study uses implementation of the Energy Efficiency and Conservation Block Grant Program to examine the use of formal and informal contract management techniques in the implementation of energy projects. The use of formal contract mechanisms, such as full and open competitive bidding, contact rescission and outcome-based performance measures, exhibits a statistically significant effect on implementation performance. The findings advance contracting theory and have practical implications for local government contracting and implementation success in fiscal federalism.     

A replication of “Contracting out: For What? With Whom?”

In the 1980s, governments around the world adopted New Public Management ideas about inserting competition into government as a way to improve the performance of public organizations. In many nations, contracting out was one method of making governments more businesslike. Yet, there have been few studies of how government contracting behaviors have changed since the early 1980s. We replicate Ferris and Graddy's classic 1986 study of local government production and sector choice to assess how public procurement has changed over the past 35 years. Our findings show that today, contracting out is more commonly used across 25 local government service areas. In contrast to the original study, much of the growth has been in government-to-government contracts. For profit firms are also winning more contracts for high transaction cost work, while nonprofits are receiving fewer government contracts in nearly every service area. Our analysis suggests that contracting out remains of the highest importance in 21st-century governance and that additional research is needed on how to manage contracts to achieve the best value.     

Between Prescription and Practices in Seoul Metropolitan City: Institutional Constraints and Relational Contracting

Public choice theories suggest contracting out as a cure-all for various weaknesses of government bureaucracy and its absence of competition. The transaction cost economics theory challenges these theories, arguing that competitive contracting is appropriate only for hard services like human waste collection while relational contracting is for soft services such as welfare facility management. After examining contracting practices of 25 district governments of Seoul Metropolitan Government, however, this study found that informal institutional constraints led district governments to adopt relational contracting for human waste collection and to adopt competitive contracting for welfare facility management.     

Municipalities’ Contracting Out Decisions: An Empirical Study on Motives

Municipalities have various motives behind their decisions about the modes of their task execution. Empirical studies have not yet provided a fully satisfying explanation for municipalities’ contracting out decisions. Therefore, we interviewed several Dutch principal municipal managers to evaluate the causes and motives for the choices of the current structures for the delivery of their services. This study investigates the relevance of common public choice and transaction cost motives on contracting out and explores the relevance of additional institutional and pragmatic motives. We found that municipalities do not regularly evaluate the service provision of their activities and the potential benefits of outsourcing. In fact, if the activity has an adequate performance level and complaints from municipal employees, local politicians or inhabitants do not occur, a catalyst for a discussion on the contracting out of this activity is, in general, lacking. Principally in the case of structural underperformance municipalities consider a change of service provider, and then the efficiency motive is most relevant. Thereby, institutional motives – such as the stability of service provision – and pragmatic motives are also relevant. Institutional pressures in particular initiate the evaluation of organisational performance, whereas both economic motives as institutional and pragmatic motives are used to compare alternative service providers.     

Contracting Out Parks and Recreation Services: Correcting for Selection Bias Using a Heckman Selection Model

Despite the growing scholarly attention on the efficiency rationale of contracting out, the empirical evidence to support claims that contracting out service delivery reduces service costs has not been forthcoming. Using transaction cost theories, this research explores park and recreation service provision costs across contractor sectors, controlling for the choice to contract out a service or not. The two-stage Heckman model indicates the importance of competitive markets and economies of scale in reducing transaction cost risk which local governments must face. This research also addresses how state and local institutional settings define the context in which policy decisions are made and implemented.     

ISSUE FRAMING AND SECTOR CHARACTER AS CRITICAL PARAMETERS FOR GOVERNMENT CONTRACTING‐OUT IN THE UK

This article shows that variations in how two UK governments justified contracting‐out (issue framing), combined with shifting sector‐derived incentives for union activism (sector character), can help explain the extent of contracting‐out. Janitorial service, an activity of the UK government that should have been ‘low hanging fruit' for its prolific reformers, proved difficult to contract‐out for Thatcher's New Right Conservatives, but easier to contract‐out for Blair's New Labour. The New Right government framed contracting‐out narrowly, as merely an improvement in operational efficiency, and its reform faced unions that stood to lose a great deal from movement of janitorial jobs to private firms. In contrast, the New Labour government framed contracting‐out broadly, as a means to efficient social justice, and faced unions with low stakes in government janitors. As a consequence, UK government units could expect lower benefit and higher cost from contracting‐out janitors under Thatcher than they would under Blair.     

Contracting out local road and park services: economic effects and their strategic,contractual and competitive conditions

ABSTRACT

The economic rationale for contracting out local services is increasingly contested by empirical research. This article aims to contribute to this literature, first by scrutinising the economic effects of contracting out in local road and park services and, second, by exploring how characteristics such as markets, contracts, municipal strategies and contracting history influence these outcomes. Drawing on original survey data from Danish municipalities, we find that competitive tendering has on average reduced costs. Further analysis shows that savings are not associated with lower quality, thus indicating that ‘quality shading’ was not taking place. Another finding is that municipalities that repeatedly contract the services experience smaller savings, suggesting that competitive tendering is subject to declining marginal returns. Finally, we find that larger municipalities and those emphasising expenditure cuts realise larger savings, whereas the characteristics of markets and contracts do not seem to explain variations in cost savings.     

WHAT WORKS BEST WHEN CONTRACTING FOR SERVICES? AN ANALYSIS OF CONTRACTING PERFORMANCE AT THE LOCAL LEVEL IN THE US

During the last decade the field of public administration has undergone a period of renewed interest in the topic of performance and effectiveness. Key contributions to the growing stream of research on public sector performance include work focusing on the adoption and implementation of performance measurement in the public sector (see, for example, Julnes and Holzer 2001; Behn 2003 ); theoretical and empirical research on management’s effect on organizational performance (see, for example, O’Toole and Meier 1999; Meier and O’Toole 2002 ); and efforts to identify the determinants of organizational effectiveness (see, for example, Rainey and Steinbauer 1999; Brewer and Selden 2004 ). Surprisingly, this literature includes very few studies that explicitly address the issue of performance in contracting for services (exceptions include Domberger and Hensher 1993; Romzek and Johnstone 2002 ). In the United States alone, hundreds of billions of dollars are contracted out every year, and innumerable policies and programmes are implemented, at least in part, through contractual arrangements between public agencies and private providers ( Savas 2000; DeHoog and Salamon 2002; Kelman 2002; Cooper 2003 ). Moreover, contracting for services appears to be a growing trend in Western Europe and other regions ( Kettl 2000; Savas 2000 ). With the stakes so high, there is a pressing need for research that identifies factors and practices that contribute to success in contracting for services. This paper takes on the challenge by developing a model of contracting performance and testing it using Substantively Weighted Analytic Techniques (SWAT), a new methodology that allows researchers to isolate high performance among a large number of observations in order to identify variables practitioners can manipulate to improve practice ( Meier and Gill 2000 ).     

TRANSFORMING PUBLIC SERVICES: CONTRACTING FOR SOCIAL AND HEALTH SERVICES IN THE US

Government contracting with private service organizations has grown rapidly in the United States in the last 25 years. Advocates of contracting hope that it will spur competition among service agencies, lowering costs and improving service quality. In practice, however, contracting departs significantly from this competitive model. Instead, government and private agencies develop long-term relationships which can be considered regimes governed by specific norms and expectations. These regimes profoundly influence the delivery of services and the politics of contracting. This article analyses these regimes in the context of the contested nature of public authority. The article concludes with suggestions for reforming public policy to improve the performance and effectiveness of contracted services.     

THE PRACTICE OF CONTRACTING IN PUBLIC PRIVATE PARTNERSHIPS: TRANSACTION COSTS AND RELATIONAL CONTRACTING IN THE IRISH SCHOOLS SECTOR

This paper explores the practice of contracting in public private partnerships (PPP). Focusing on the first Irish PPP to provide secondary schools, it draws on perspectives from transaction cost economics and socio‐legal theory. It finds that the ex ante contractual setting was undermined by pushing forward with the PPP before conducting an adequate level of project appraisal. It explores the experiences of key stakeholders in the ex post contracting stage and concludes that the conduct of contracting practice was not characterized by the shift to relational contracting expected under PPP. Whereas this approach to contractual governance did not hinder the development of broadly trusting relations between the client and contractor, this was not manifest in terms of relations between the contractor and schools. A significant degree of conflict was evident in some schools‐contractor relations, something which can be attributed to sources of transaction costs, including incomplete information, bounded rationality and uncertainty.     

Does intermunicipal cooperation increase efficiency? A conditional metafrontier approach for the Hessian wastewater sector

ABSTRACT

This paper analyses the relationship between intermunicipal cooperation and efficiency of public service provision. Organisational arrangements of public service production, including self-provision, joint provision or contracting, affect incentives and internal transaction costs. Hence, cooperation gains from scale effects need to be balanced against technical inefficiencies. We analyse relative efficiency of wastewater disposal for German municipalities. We employ a conditional analysis in conjunction with a metafrontier approach to calculate relative efficiency measures and technology gap ratios controlling for organisational arrangements and further environmental variables. Jointly providing municipalities and contractor municipalities exhibit lower technical efficiency than self-providing and contracting municipalities. As confirmed by previous research, scale effects from cooperation and contracting apply to small municipalities primarily.     

From-Long Term To Short-Term Contracting

One can look at the arrival of New Public Management and the extensive public sector reforms inspired by this theory from many angles. Here we examine the shift from long-term contracting, typical of bureaucracy and traditional enterprises, to short-term contracting, borrowed from private sector governance methods. Short-term contracting has three principal uses in the governance of the public sector: (a) contracting with service providers after a tendering/bidding process; (b) contracting with the CEOs of the incorporated public enterprises; and (c) contracting with executive agencies about what they should deliver. Theoretical analysis, supported by substantial empirical evidence, suggests that short-term contracting eliminates the extensive post-contractual opportunism connected with long-term contracting, but is vulnerable to precontractual opportunism. Short-term contracting is not just another public sector reform fad, but constitutes a new tool for government which increases efficiency when handled with prudence.     

CORPORATE CAPACITY AND PUBLIC SERVICE PERFORMANCE

Corporate capacity is arguably a key determinant of the success or failure of public sector organizations. However, while there is growing evidence on the extent of corporate capacity, few researchers have systematically examined whether it is linked to public service performance. Does a larger corporate centre lead to better or worse performance for the organization as a whole? To answer this question we apply seemingly unrelated regression to measures of effectiveness, cost‐effectiveness and equity in English local government. We find that the effect of corporate capacity on performance is nonlinear, following an inverted u‐shaped pattern, and that its positive effect turns negative around the mean for effectiveness and cost‐effectiveness, and above the mean for equity. The study therefore suggests that senior managers face important trade‐offs between organizational goals when deciding on the appropriate level of corporate capacity.     

Privatization in developing countries: ideal and reality

In both developed and developing countries, governments finance, produce, and distribute various goods and services. In recent years, the range of goods provided by government has extended widely, covering many goods which do not meet the purist's definition of “public” goods. As the size of the public sector has increased steadily there has been a growing concern about the effectiveness of the public sector's performance as producer. Critics of this rapid growth argue that the public provision of certain goods is inefficient and have proposed that the private sector replace many current public sector activities, that is, that services be privatized. Since Ronald Reagan took office greater privatization efforts have been pursued in the United States. Paralleling this trend has been a strong endorsement by international and bilateral donor agencies for heavier reliance on the private sector in developing countries.

However, the political, institutional, and economic environments of developing nations are markedly different from those of developed countries. It is not clear that the theories and empirical evidence purported to justify privatization in developed countries are applicable to developing countries.

In this paper we present a study of privatization using the case of Honduras. We examine the policy shift from “direct administration” to “contracting out” for three construction activities: urban upgrading for housing projects, rural primary schools, and rural roads. The purpose of our study is threefold. First, we test key hypotheses pertaining to the effectiveness of privatization, focusing on three aspects: cost, time, and quality. Second, we identify major factors which affect the performance of this privatization approach. Third, we document the impact of privatization as it influences the political and institutional settings of Honduras. Our main finding is that contracting out in Honduras has not led to the common expectations of its proponents because of institutional barriers and limited competitiveness in the market. These findings suggest that privatization can not produce goods and services efficiently without substantial reform in the market and regulatory procedures. Policy makers also need to consider carefully multiple objectives at the national level in making decisions about privatization.     

CONTRACTING FOR PUBLIC SERVICES: A REVIEW OF ANTIPODEAN EXPERIENCE

In this article the evolution of competitive tendering and contracting ( ctc ) policy in Australia and New Zealand is documented and evaluated. Policy implementation at Commonwealth, State and local levels in Australia is examined in some detail. This was followed by a similar analysis of the two levels of government in New Zealand. An overall appraisal of the impact of CTC on efficiency and effectiveness of service delivery is undertaken, based on disaggregated contracting surveys of State and Commonwealth government agencies as well as a wide range of other sources of information. The key findings, which are summarized in tabular form, indicate that the pace of implementation has varied widely across jurisdictions. This variability is largely a function of differences in political orientation of the governments in power, particularly in Australia. Despite these differences, the findings suggest that efficiency gains stemming from the application of ctc are substantial and widespread. Furthermore, quality of service has not, in general, been sacrificed to cost reductions. There is every indication that the current rate of progress of policy implementation is set to continue. In Australia, it may even accelerate with the onset of a national competition policy which will place competitive pressures on providers of public services.     

Is there still collusion in the Dutch waste collection market?

Concentration indexes based on regional markets show that the Dutch market for refuse collection is highly concentrated in 2002 and 2010. Similar to earlier work in 2007, the results indicate some evidence that high concentration increases costs and therefore (partly) offsets the advantage of contracting out. In 2002, results with respect to concentration are somewhat less robust. In 2010, the cost-advantage effect of private provision becomes smaller. However, for this year, we have a stronger indication that the cost advantage of private provision depends negatively on regional concentration measured by the Hirschman–Herfindahl Index.     

Evaluating the Effectiveness of Public Procurement Performance Management Systems in Local Governments

Increasing the effectiveness, efficiency, and compliance of public procurement (PP) has become an ongoing concern for governments. Public administrations at different levels are realising that – in order for PP to fulfil its mission – appropriate control and diagnostic systems must be put in place. This study aims to investigate the architecture of PP performance measurement systems (PP-PMSs) in local governments, drawing on four case studies from Italy and four from Wales. The theoretical background is provided by the emerging literature on procurement PMSs in the private context as well as the specific literature on the public sector. PP-PMSs are specifically analysed with respect to performance areas covered (i.e., cost, quality, time, compliance, innovation, sustainability). Results show that performance dimensions should be extended beyond traditional cost measures, with KPIs not limited to those imposed by national/regional regulation. Furthermore, we show that this is likely to happen where the procurement function is recognised as strategic in the public institution.     

DESIGNING CONTRACTS FOR COMPLEX SERVICES

In this article, we employ transaction cost economics and the contingency stream of organization theory to answer two related questions. First, when contracting for complex services, do governments design contracts for flexibility? Second, is the contingency perspective relevant to understanding contract design? Examining 130 professional service contracts awarded by state government agencies in the USA, we find that task complexity and task unpredictability, two dimensions of task uncertainty, increase the probability of flexible governance. This research highlights for managers the important fact that the potential for opportunism and task complexity are different sources of uncertainty that pose different challenges and call for different governance solutions. The study enriches our understanding of transaction costs by probing the conditions under which task uncertainty matters most (and least), and further shows the utility of integrating transaction cost economics with contingency theory to better understand contract governance.     

Actions by Political Officials Have Weakened the Federal Government Workplace: Downsizing Has Cut Lower Level Workers the Most and Replacing Federal Employees with Private Corporations Costs Much More,Creating the Need for Immediate Reform

Abstract

The authors of this paper are four practitioners each of whom has many years of experience working in the Federal government and also has pursued doctoral studies in public or business administration. Three ideas developed in this paper are that: (1) the Federal civil service has been changed from being a model workplace to a much less desirable one; (2) although downsizing has been touted as an efficiency and economy measure, lower level employees experienced the most cuts and (3) the current practice of replacing Federal employees with private corporations costs much more. Over the past two decades private sector workplaces in the United States, and now the Federal government workplace, have experienced so much change that previous theories, concepts, models, and expectations no longer hold. Just as private industry workplaces have been changed by downsizing, reorganizations, mergers, elimination of middle management, and outsourcing, so, too, has the Federal government workplace been fundamentally altered. Reducing the number of government workers, replacing Federal employees with private firms, increasing the number of officials with political agendas, and using harsh personnel management practices have transfigured the Federal workplace. Examples of factors that have contributed to a changed workplace include: the Civil Service Reform Act which replaced the Civil Service Commission with the Office of Personnel Management; importing private sector approaches into the government, e.g., the Grace Commission; replacing the Civil Service Retirement System with the Federal Employees Retirement System; pressure to downsize and privatize; and many elements of the National Performance Review and Government Performance and Results Act. Now that the metamorphosis away from the traditional Civil Service borne of the Pendleton Act is nearly complete (although the new paradigm is not entirely clear), questions about the effects of a changed government workplace are being raised. Some people believe the metamorphosis is from a caterpillar to a butterfly, while others think the opposite. Whether the changed Federal government is a thing of beauty or a distasteful organism will be determined over time by observations and assessments of the effects of the change. These effects will be both internal to the government workplace, itself, and external to it, involving the products, services, outputs, and outcomes it produces. This paper begins by describing some of the politically mandated changes that have altered the very foundation of the Federal government workplace over the past 20 years and made it a much less desirable place to work. Next, some of the effects of two politically mandated changes are examined: (1) downsizing or reducing the number of Americans who can work for their government and (2) contracting out or replacing government workers with private corporations. Political officials have told the media and the American public that these changes were needed to improve the government's efficiency, effectiveness, and economy. It has been suggested that these initiatives will reduce costs. However, an examination of downsizing and contracting out shows the opposite effect. While overall the Federal government has fewer employees now than in 1961, the statistics indicate that lower level employees have been cut the most:

• The number of secretaries decreased by 39% between 1992 and 1998.

• The blue collar workforce is down 40% since 1982, e.g., Supply Clerical and Technician (?35%), Accounting Technician (?24%), and Electronics Mechanic (?41%).

• Between 1993 and 1998 the number of GS‐1 to GS‐10 employees fell from 767,000 to 594,000.

• In 1983 the number of GS‐1 to GS‐10 workers exceeded GS‐11 to GS‐15 by nearly 300,000, while in 1997 GS‐11 to GS‐15 outnumbered the lower level workers by 44,000.

Although authoritative cost comparison studies are difficult to conduct because top officials have made little provision to collect information on the cost of contracting with private firms or the number of contract employees, available information indicates that it is much more expensive than using government employees. The contracting out we are talking about is not the usual kind—building ships or planes, or acquiring computer systems or special expertise not available in the government. Rather, it is contracting with private firms to do jobs that are currently being performed by Federal employees. Not satisfied with the level at which firms are being substituted for Federal employees, actions by political officials have created an environment which now favors private corporations and where they can be given work at top management's discretion, often regardless of cost. In fact, today most contracting out is done without the use of Circular A‐76 Cost Comparison Studies. There is empirical and logical evidence that shows that replacing government employees with private corporations is more expensive. For example, a study by the Department of the Army documents what people close to contracting have always known—that it is far more expensive to contract with a private firm for work than to have Federal employees do it. Logically, the government incurs additional items of cost when replacing Federal employees with private corporations. First, there is the profit that goes to the firm. Second, there is the firm's overhead which pays for corporate offices, staffs, and CEOs. Third, there are the costs of the contracting and award process and of contract administration and management. Although the worker on a government contract may be paid a little less than a government worker, the cost of the worker is only a third to a half of what the government pays the firm. Thus, replacing government workers with private firms usually costs far more and it is not unusual for it to cost two to three times as much. This paper partly is based on the authors' long experience in the Federal government. It is not based on the organizations in which they are currently employed.