Reassessing Privatization Strategies 25 Years Later: Revisiting Perry and Babitsky's Comparative Performance Study of Urban Bus Transit Services

Privatization appeals to citizen and politician desires for more cost-effective methods of service delivery. For this reason, it is important for public administrators to know when gains can be made by contracting out or privatizing services and when it is better to keep service provision in house. This article assesses the viability of contracting out and privatization of transit services. Following up on the 1986 work of James Perry and Timlynn Babitsky, which used data from the early 1980s, the authors revisit whether certain service delivery arrangements are more efficient and effective than others in the provision of transit services. Twenty-five years later, they find results similar to those of Perry and Babitsky's original study. Neither the type of government nor whether an agency contracts out has much impact on the efficiency and performance of urban bus services. The main difference between the two studies is that private transit agencies are no longer more efficient or effective than public providers.     

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.     

Outsourcing Oversight: A Comparison of Monitoring for In-House and Contracted Services

The public sector contracting literature has long argued that outsourced services need to be and, in fact, are subject to a more elevated level of scrutiny compared to internally delivered services. Recently, the performance measurement and management literature has suggested that the twin themes of accountability and results have altered the management landscape at all levels of government. By focusing on performance monitoring, the implication is that monitoring levels for internally provided services should more closely approximate those for contracted services. The analysis provided here yields empirical comparisons of how governments monitor the same service provided in-house and contracted out. We find evidence that services provided internally by a government's own employees are indeed monitored intensively by the contracting government, with levels of monitoring nearly as high as those for services contracted out to for-profit providers. In contrast, however, we find strong evidence that performance monitoring by the contracting government does not extend to nonprofit and other governmental service providers, each of which is monitored much less intensively than when comparable services are provided internally. For such service providers, it appears that monitoring is either outsourced along with services, or simply reduced.     

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.     

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.     

BUREAUCRATS AS PURCHASERS OF HEALTH SERVICES: LIMITATIONS OF THE PUBLIC SECTOR FOR CONTRACTING

Contracting out of health services increasingly involves a new role for governments as purchasers of services. To date, emphasis has been on contractual outcomes and the contracting process, which may benefit from improvements in developing countries, has been understudied. This article uses evidence from wide scale NGO contracting in Pakistan and examines the performance of government purchasers in managing the contracting process; draws comparisons with NGO managed contracting; and identifies purchaser skills needed for contracting NGOs. We found that the contracting process is complex and government purchasers struggled to manage the contracting process despite the provision of well‐designed contracts and guidelines. Weaknesses were seen in three areas: (i) poor capacity for managing tendering; (ii) weak public sector governance resulting in slow processes, low interest and rent seeking pressures; and (iii) mistrust between government and the NGO sector. In comparison parallel contracting ventures managed by large NGOs generally resulted in faster implementation, closer contractual relationships, drew wider participation of NGOs and often provided technical support. Our findings do not dilute the importance of government in contracting but front the case for an independent purchasing agency, for example an experienced NGO, to manage public sector contracts for community based services with the government role instead being one of larger oversight. Copyright © 2011 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 in US cities, ambulances and elderly voters

This paper develops a public choice model of city service provision, and uses empirical analysis to pin down some of the model’s key assumptions. Many of the largest cities in the United States outsource emergency medical services, and analysis of data from the 200 largest US cities finds that a number of variables are significant determinants of emergency ambulance outsourcing, including the fraction of a city’s voters over the age of 65. This finding provides evidence that elderly voters are important in policy determination, and suggests a particular shape for the model’s contracting cost curve.     

The Changing Role of Government in Community Services: Issues of Access and Equity to Administrative Review

Governments are increasingly moving to privatise, or contract out many community services and functions previously the responsibility of the public sector. Consumers of community services stand to benefit from this trend toward contracting out. However, it is also apparent that there is a need to ensure that improved avenues of review, redress and safeguards accompany these changes in delivery and decision making.     

Employment,privatization, and managerial choice: Does contracting out reduce public sector employment?

We examine the effects of governments' use of alternative service provision on public employment using panel data from a nationally representative sample of local governments. We model the effects of alternative service provision on the size of the public workforce and hypothesize that alternative provision jointly impacts both full‐ and part‐time employment. We find evidence of an inter‐relationship between these employment types. Our results from seemingly unrelated and 3SLS regressions indicate that full‐time employment in the public sector declines when additional services are provided by for‐profit providers, while part‐time employment increases. The net employment effect in the public sector is negative when government services are moved to the for‐profit sector. These combined effects result in a compositional shift toward more part‐time public sector employment. © 2006 by the Association for Public Policy Analysis and Management     

Government-to-Government Contracting: Stewardship,Agency, and Substitution

ABSTRACT

This paper provides empirical evidence detailing the distinctive nature of service delivery provided through contracts with other governments. The results of a survey of Ohio city and county managers both confirm and stand in contrast to implications derived from stewardship theory. Consistent with stewardship, our data demonstrate that contracts with public sector service partners generate less intensive monitoring by contracting governments than do services contracted with private entities. In contrast to stewardship theory, we find that contracting governments do not use other governments for services requiring intensive monitoring. In an era of accountability and results-oriented management, reliance on trust may not satisfy constituents who seek evidence of effective service delivery. The inability of the contracting government to affect another government's service delivery reduces the attractiveness of that government as a contracting partner. If the tools of stewardship prove to be inadequate, the imposition of carrots and sticks appropriate for a principal-agent relationship could undermine the trust central to stewardship. Given these tensions, it is not surprising that governments are contracting less with other governments.     

Contracting Capacity and Perceived Contracting Performance: Nonlinear Effects and the Role of Time

Contracting out has become a popular strategy in public service delivery, but it remains uncertain whether and how government can ensure contracting performance. As a result, a growing literature emphasizes the importance of governments' contracting capacities. Yet very few studies have empirically assessed how contracting capacities relate to contracting performance. This article identifies four types of contracting capacities in terms of agenda setting, contract formulation, contract implementation, and contract evaluation, relating them to three performance dimensions including cost, efficiency, and quality. Drawing from a manager survey from Taiwan, the article shows that the relationships between the capacities and the performance indicators are not always straightforward or linear, and the relationships are complicated by the role of time. The results suggest that contracting capacities have both benefits and costs, and the solutions rooted in the economics theory should not be taken beyond their appropriate boundaries.     

Contract–Management Capacity in Municipal and County Governments

Under pressure to do more with less, governments across the country have moved from direct service provision to providing services by contract. Proponents argue that contracting can reduce costs and improve flexibility and customer satisfaction. Critics point to a growing number of failed contracts, arguing there are numerous pitfalls associated with contracting. Missing from these debates is a discussion of how governments' managerial capacity can improve contract performance. In this article, we identify specific capacities that governments can use to harness the promise of contracting while avoiding its pitfalls. We present analyses of data on municipal and county government contracting activities that show how governments invest in contract– management capacity in response to several internal and external threats to effective contract performance. Because government investment in contract–management capacity is uneven—that is, some governments invest in less capacity even when circumstances would call for more—our analyses may help to explain why some contract arrangements are more successful than others.     

Contract City Redux: Weston, Florida, as the Ultimate New Public Management Model City

Contracting out has become an accepted and, indeed, universal method of providing services in both the private and public sectors. Yet rarely has a municipality outsourced just about every service under its direct control—from public safety (police and fire), to solid waste collection and disposal, to parks maintenance, to municipal engineering and legal services. Weston, Florida, a city of some 62,000 residents, operates with just three employees—the city manager and two assistants. Hence the primary role of city manager has changed as well, from day-to-day administrator to contract manager and monitor. This essay describes the contracting operations in Weston and evaluates their efficiency and effectiveness.     

Municipalities’ Choices of Service Delivery Modes: The Influence of Service,Political, Governance,and Financial Characteristics

This study investigates the influence of service, political, governance, and financial characteristics on municipalities’ choices of four service delivery modes (in-house, inter-municipal cooperation, municipality-owned firm, and private firm) in the Dutch local government setting. The results show that as a service involves more asset specificity and more measurement difficulty, the likelihood that municipalities contract this service out is lower. Also, although some differences in preferences are found between boards of aldermen and municipal councils, for both political bodies a more right-wing political orientation is shown to be positively related to privatization of services. Furthermore, contracting out is also shown to be related to the governance model of municipalities, as services of municipalities that (in general) put relatively less emphasis on input, process, and output performance indicators, and more on outcome performance indicators, are more likely to be privatized. Finally, the results also show that services of municipalities that have a better financial position are less likely to be contracted out to a private firm.     

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.     

QUALITY COST IN THE PUBLIC SERVICE: IDENTIFYING, MEASURING AND REPORTING

Abstract: The identification, collection, and reporting of quality costs are necessary to achieve efficiency in the delivery of public service. This paper argues that quality costs are major elements in the total costs of delivering programs and services in the public service. To support this point, a seven-step system is described that could be used to develop a feasible modification of existing charts of account to incorporate quality cost elements. Incorporation of quality cost elements in the financial accounting system would enable the public service to use quality costs in the current wave of performance management of programs and services to bring about reliable and valid efficiency measures of deliveryfunctions.     

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 Outsourcing — Initiatives and Methods

Public debate about the use of competitive tendering and contracting (CTC) by governments largely revolves around whether this process actually does lead to better outcomes compared with direct public provision, and whether the formal separation between service specification and delivery enhances or undermines the achievement of policy goals. Over the last decade debate about CTC in Australia has tended to move away from a narrow focus on ideology, towards a broader discussion about how this process can be best managed. The various reviews of CTC currently underway provide an ongoing opportunity for individuals and groups to express their views and highlight their experiences with CTC. These reviews will provide further guidance about how this process can be best managed in the interests of the Australian community.