Alternative Methods of Service Delivery in Small and Rural Municipalities

Data from approximately 1,000 small, mostly rural municipalities in Illinois, New Hampshire, and Wisconsin address local choices on production and contracting arrangements for a wide range of services. The results suggest that the use of both for‐profit contractors and cooperative agreements with other governments correlate negatively with population size. Small municipalities are less likely to use competitive bidding processes, compare costs between production options, or report that privatization produces savings. Median income, rural geography, and ideology show statistically significant associations with contracting decisions. Respondents generally consider themselves “satisfied” with services provided by contract, although satisfaction levels are lower than those associated with self‐provision of the same services. Citizen satisfaction associated with services delivered by other governments is lower than those provided by private contractors, suggesting that no trade‐off in service quality is directly attributable to for‐profit contractors.     

Cheap and Dirty: The Effect of Contracting Out Cleaning on Efficiency and Effectiveness

Contracting out of public services, especially ancillary services, has been a key feature of New Public Management since the 1980s. By 2014, more than £100 billion of U.K. public services were being contracted out annually to the private sector. A number of high‐profile cases have prompted a debate about the value for money that these contracts provide. Value for money comprises both the cost and the quality of the services. This article empirically tests the contestability and quality shading hypotheses of contracting out in the context of cleaning services in the English National Health Service. Additionally, a new hypothesis of coupling is presented and tested: the effect of contracting of ancillary services on patient health outcomes, using the hospital‐acquired infection rate as our measure. Using data from 2010–11 to 2013–14 for 130 National Health Service trusts, the study finds that private providers are cheaper but dirtier than their in‐house counterparts.     

Quality Control and Contracting Out of Legal Aid

This article reports on an evaluation of a pilot project in the tendering out of legal aid defence services for criminal matters in the Queensland District Court. Comparisons were made on quality and cost between the assignment of matters through competitive contracting and conventional assignment to private practitioners through a panel and scale fee system. Results show no significant differences in case outcomes and client perceptions of quality. In the interests of further cost reductions, any extension of tendering would need to focus on relatively simple, high-volume areas of prescribed crime, where there is less risk that competitive pricing will reduce the quality of service delivery. In addition, the evaluation indicated that greater savings might in future be obtained by enhanced utilisation of in-house (salaried) legal aid practitioners.     

Privatization and cost reduction

In this paper several examples of government contracts with private firms are examined to see how experience conforms to a principal-agent model of cost minimization via competitive bidding and how important are the many qualifications to the model. Fifteen cases of local government contracting are examined.The course of private contracting is not always smooth — as judged by the many contract disruptions observed and by the number of cities that believe they are no longer saving money by contracting and those which have resumed public production. It also seems to be the case, however, that competition generally reduces initial costs, that in many cases cost savings persist, that it is possible to stimulte competition, and that providing for continual interaction, as contrasted with simply monitoring performance, can prevent disruption.     

Purchasing Policy Advice: The Limits to Contracting Out

Throughout the OECD, governments have been contracting out an increasing range of goods and services. Against this background, this article outlines the case for, and assesses the merits of, placing the purchase of governmental policy advice on a more competitive basis. Two options are given particular attention: first, the creation of an internal market for policy advice within the public sector under which departments and other government agencies would tender to supply specific policy outputs; and second, a more radical option under which public and private sector organizations would compete for the contracts to supply governmental policy advice. Drawing on the insights of the new institutional economics, it is argued that neither option is likely to enhance the efficiency or effectiveness with which policy advice is produced, whether under conditions of short-term or long-term contracting. This is due to the likelihood of: only partial contestability (due, among other things, to asset specificity in the form of transaction-specific expertise and trust); a greater risk of opportunistic behavior by the suppliers of advice (and also, under some conditions, by the purchasers); higher agency costs and transaction costs; and greater problems with respect to horizontal and vertical policy coordination. Such considerations suggest that the widespread reliance of governments on relatively permanent advisory institutions and in-house expertise can be explained and justified on the same theoretical grounds that have prompted the contracting out of other publicly-funded goods and services.     

Contracting Out and Accountability

Governments are increasingly moving to contract out the provision of public services which have previously been delivered by public service departments. Contracting out typically implies provision by private sector contractors. However, it may also include in-house provision by public service departments or other public agencies where the right to provide is won through competitive tendering and is governed by contract. At the Commonwealth level, the trend has been given added impetus by the Coalition government elected in 1996 (Reith J 996; National Commission of Audit 1996).
The main rationale for contracting out is to improve efficiency in service provision by harnessing the virtues of competition, in particular the superior productivity engendered among competitive providers (Industry Commission (IC) 1996, B3.4; Appendix E). At the same time, there is a legitimate expectation that providers of public services paid for by public funds will be publicly accountable (IC 1996, BI). However, contracting out has the potential to reduce the extent of public accountability by transferring the provision of public services to members of the private sector who are generally not subject to the same accountability requirements as public officials. Indeed, reduction in such accountability requirements may be one of the reasons for the greater efficiency of the private sector.     

Does Fiscal Stress Induce Privatization? Correlates of Private and Intermunicipal Contracting, 1992–2002

Using Census of Governments data, preferences for private and intermunicipal contracting by U.S. counties during the 1992–2002 period are modeled as a function of established economic and political factors. After distinguishing between private and intermunicipal contracting, there is no evidence that fiscal stress induces privatization. High debt levels are associated with fewer publicly delivered services, but counties with high debt are as likely to partner with neighboring municipalities as they are with private firms. Political factors are weak predictors of either form of contracting. The strongest and most reliable predictor of both private and intermunicipal contracting is the creation of new public services. These findings imply the strategic use of contracting for trial, temporary, or contingent services.     

Outsourcing Public Health Laboratory Services: A Blueprint for Determining Whether to Privatize and How

In a continuing effort to reform and reinvent the way public organizations do business, the outsourcing of services has become a popular tool, particularly as resource constraints limit options available to governments. All too often, the decision is made, for reasons of ideology or resource constraints, to outsource services without giving careful consideration to the impact of privatization on the core missions of an agency, or whether privatization, in fact, offers real cost savings. Purchasing tools designed for traditional commodity purchases are often grossly unsuited for making decisions on specialized technical services.
This article suggests a process for the evaluation of an option to outsource laboratory services. It suggests that, prior to contracting or privatizing services, the concerned agency should evaluate:
the impact on the agency's core mission
the availability, stability, and reliability of private sector service providers
the relative costs of internal and external (public or private sector) service providers
the potential impact on regulatory enforcement
the ability to monitor the performance of external providers
potential conflicts of interest
Based on this model, the ongoing internal evaluation of services offers public agencies management tools to obtain the best value for the taxpayer dollar, not only in terms of the raw cost per test, but also in managing the quality of the services.     

Outsourcing Public Service Delivery: Management Responses in Noncompetitive Markets

Capturing the benefits of competition is a key argument for outsourcing public services, yet public service markets often lack sufficient competition. The authors use survey and interview data from U.S. local governments to explore the responses of public managers to noncompetitive markets. This research indicates that competition is weak in most local government markets (fewer than two alternative providers on average across 67 services measured), and that the relationship between competition and contracting choice varies by service type. Public managers respond to suboptimal market competition by intervening with strategies designed to create, sustain, and enhance provider markets. In monopoly service markets, managers are more likely to use intergovernmental contracting, while for‐profit contracting is more common in more competitive service markets. The strategies that public managers employ to build and sustain competition for contracts often require tangible investments of administrative resources that add to the transaction costs of contracting in noncompetitive markets.     

Competitive Tendering and Contracting in the Australian Public Sector

The Hilmer reforms, and recent reports from the Industry Commission, advocate a significant shift toward competitive tendering for Australian public services. This article discusses the policy debate in the light of recent developments in the economic theory of contracts.
It will be argued that, although more intense competition can, on some occasions, generate apparent efficiency gains, it can also generate efficiency losses. Following Stigler, it will be argued that the general tendency for competition to generate cost reductions may be explained in terms of increased work intensity, and does not therefore involve a net social welfare gain. Such issues will be examined in relation to the Industry Commission (1995b) draft report on Competitive Tendering and Contracting by Public Sector Agencies, with particular attention to the issue of net social welfare benefits of contracting out. It is suggested that the Industry Commission estimates of efficiency gains available through contracting out are based on an incomplete sample, ignore the social transfer implied in reducing costs and are unlikely to hold for many sections of the public sector.     

The Mythology of Privatization in Contracting for Social Services

States and municipalities have privatized services in an effort to improve their cost‐effectiveness and quality. Competition provides the logical foundation for an expectation of cost savings and quality improvements, but competition does not exist in many local marketplaces—especially in the social services, where governments contract primarily with nonprofit organizations. As government increases its use of contracting, it simultaneously reduces its own public‐management capacity, imperiling its ability to be a smart buyer of contracted goods and services. This article examines two questions about the privatization of social services based on interviews conducted with public and nonprofit managers in New York state: Does social services contracting exist in a competitive environment? And do county governments have enough public‐management capacity to contract effectively for social services? The findings suggest an absence of competition and public‐management capacity, raising the question of why governments contract when these conditions are not met.     

Rediscovering Implementation: Public Sector Contracting and Human Services

There is vast literature on how to implement public policies, with endless case studies emphasising a few key lessons. The drive to contracting in the public sector raises familiar threats to coherent program implementation, and adds those of control and incentives. Contracting fragments program responsibility among multiple contractors, and separates policy agencies from service delivery contractors. It raises questions about political control and accountability, and the prospect of gaps between intention and outcome. This paper 'rediscovers implementation' by reviewing the practical difficulties of constructing public-private relationships which can deliver quality human services. After considering broad arguments about the efficacy of contracting, the paper turns to the provision of human services by examining the contracting out of welfare services and the Job Network. Our argument is modest: that public sector contracting fails if the challenges of implementation are not addressed explicitly, since service delivery through the private sector can falter for exactly the same reasons as traditional public bureaucracies.     

Impact of compulsory competitive tendering on the structure and performance of local government systems in the State of Victoria*

Around the world, the public sector is introducing private sector management practices. Abandoning the binary model of public and private sectors the State Government of Victoria introduced the compulsory competitive tendering system under which local government bodies are required to tender out their services to private sector service providers. The aim was to encourage local government bodies to operate in contestable situations so that they can increase efficiency, decrease operating costs, develop clear programme goals and objectives, become responsive to client goals, and improve the quality of goods and services. The article describes how the practice of the compulsory competitive tendering system has introduced major changes to organizational cultures, attitudes of employees, power and authority structures, sytems of decision making, delegation of financial and managerial authority, and the nature of control and accountability. In addition, the article explains the degree of competitiveness and efficiency that local government bodies have achieved and describes how the corporatized structure has helped to achieve the financial objectives. The article also discusses how the role of the elected councils is diminishing under this new management structure and argues that in the absence of a genuine monitoring system and accountability mechanism the local government bodies find it difficult to assert their role as quality service deliverers. This has forced the councils to comply with the requirements of the competition laws which have reduced direct accountability of government to the public. Copyright © 2000 John Wiley & Sons, Ltd.     

Political Ideology and Social Services Contracting: Evidence from a Regression Discontinuity Design

Theoretical perspectives on the ideological influences on government contracting predict that local governments controlled by right-wing political parties will contract out a higher proportion of services than those controlled by left-wing parties. However, empirical evidence on the impact of political ideology on contracting out remains inconclusive. To cast new light on this important issue, the authors apply a quasi-experimental research design to contracting choices in children's social services in English local government. Because local governments in England are largely divided along partisan lines, it is possible to estimate ideological effects using a regression discontinuity design that captures changes in political control at 50 percent of the seats gained in local elections. The regression discontinuity estimates reveal that left-wing controlled local governments exhibit a marked aversion to private sector involvement in service provision and a clear preference for in-house service provision. These results are robust to a variety of alternative specifications.     

Outsourcing: Uncovering the Complexity of the Decision

ABSTRACT

Outsourcing is a phenomenon that, on the surface, is used to reduce costs and enable an organization to focus on its core competencies. In researching into outsourcing and whether this assumption holds true, this article focuses on public health organizations where outsourcing has been applied to both clinical and non-clinical services. In the cases observed, public sector managers assumed contracting would lower production costs for peripheral services whose outcomes could be easily measured and monitored. Clinical services were not usually outsourced because these core services were more difficult to measure. In implementing contracts for non-core services, decision makers' political and ideological objectives overshadowed management imperatives that are necessary for effective contract design and implementation, leading to poor service outcomes and little cost savings. Choosing the “right” services to contract does guarantee good outcomes such as lower costs and improved labor flexibility, but it is necessary to understand that optimum outcomes are only achievable if the service is clearly non-core, has measurable outcomes, and has low transaction frequency. It is also clear that outsourcing will not remove management problems; it simply adds another layer of complexity on top of managing staff who still provide the service.     

The present and future of public sector extension in Africa: contracting out or contracting in?

Public sector extension has come under increasing pressure to downsize and reform. Contracting out—the use of public sector funds to contract non‐governmental and private service providers—is often held up as a potential tool in reform efforts. Much has been written about the possible advantages of contracting out of agricultural extension and it is being encouraged and promoted by numerous international organizations. However, a look at field experience in Africa shows that contracting out is relatively infrequent, especially compared with the reverse—contracting in—where private sector and non‐governmental organizations finance public sector extension delivery. Case studies from Uganda and Mozambique indicate that on the ground attempts to come up with solutions to providing services to farmers are resulting in innovative contracting approaches and combined public and private institutional arrangements. Contracting in and public–private coalition approaches, in contrast to purely public sector extension (characterized by ineffectiveness and inefficiencies) and purely private for profit extension (which may ignore public goods and concerns), may help achieve extension services which are both demand led and which internalize public concerns such as environmental protection, food security and socio‐economic equity. These coalition approaches can be improved and facilitated. They deserve greater analysis and may contribute to a better understanding of extension contracting and the roles of private and public organizations. Copyright © 2000 John Wiley & Sons, Ltd.     

FDI and the costs of contract enforcement in developing countries

This article examines the relationship between foreign direct investment and host countries’ contracting institutions, the rule systems which govern commercial transactions between private actors. Given their liability of foreignness and costly exit options, we suggest that multinational corporations have incentives to influence the formal contracting environment in host countries. Further, host governments are more likely to respond to multinationals’ wishes when they are more dependent on foreign capital markets. We draw on the World Bank’s Lex Mundi dataset (Djankov et al. 2003) on micro-level contracting environment for private actors. Our analysis of a cross section of 98 developing countries suggests that FDI is associated with lower contract enforcement costs, particularly when the host country is more indebted.     

Competition and Collaboration in the Contracting of Family Relationship Centres1

In 2005–06 the Australian government announced the establishment of 65 Family Relationship Centres (FRCs) – a ‘gateway’ service assisting separating couples to reach agreement about child custodial arrangements without recourse to courts. The use of a multi‐round competitive contracting regime for the purpose of selecting service providers gave rise to a number of tensions amongst not‐for‐profit organisations (NFPOs) which, to a degree, compromised the full realisation of stated public policy aims. Reporting on fieldwork conducted with a sample of FRC operators, industry representatives and key government officials this article evaluates the extent to which the case of FRCs conforms to critiques commonly aired in the social policy literature that attribute various forms of policy failure and/or social capital depletion to the competitive contracting of human services within quasi‐markets. Although the competitive selection process imposed significant costs on the NFPOs involved, the program also exhibited substantial collaborative and collegial behaviours between government and NFPOs, thus diverging from the critique usually portrayed in the literature.     

Contractualism, Democracy and Ethics

Contractualism, as concept and practice, may be defined in different ways (Yeatman 1995, 1998). In this article I am concerned with contracting out or outsourcing as it is otherwise known. That is, I focus upon the process whereby functions undertaken formerly by government are now performed by private or voluntary organisations in a contractual relationship with public service departments and agencies. Whereas departments and agencies once provided a full panoply of services directly, government purchasers now select providers by tendering competitively for an expanding range of employment, education, health, social welfare and local government services. Contractualism, then, involves the recon-figuation of public service provision to favour quasi-commercial rather than bureaucratic forms.