Academic journal article Public Personnel Management

A Framework for Considering the Contracting out of Government Services

Academic journal article Public Personnel Management

A Framework for Considering the Contracting out of Government Services

Article excerpt

This article analyzes the contracting out decision. It assumes that the decision to assign responsibility to local government for providing a particular service to the public has already been made, and that a rationale for making that decision has been articulated, usually in the form of a legislative mandate. Therefore, the issue that remains for local government is how best to effectuate this mandate. This article offers a critical evaluation of various approaches to analyzing the contracting out decision and provides a comprehensive framework for undertaking such analyses. Adherence of the framework requires an ambiguous, comprehensive statement of service goals followed by an economic cost-benefit evaluation that takes into account all direct costs, as well as indirect costs and social costs, in order to properly ascertain whether there is any advantage to contracting out as compared to performing the work in-house.

In recent years there has been a great deal of discussion about the proper role and size of government. Some of this debate has centered on what services state and local governments should be providing in their jurisdictions and what service responsibilities should be returned to the private sector (i.e. the "privatization" issue).(1) Other discussions and studies have more narrowly focused on whether public services should be produced by a public workforce or by hired private agents (i.e. the "contracting out" issue).(2)

This article is concerned with the contracting out decision. In other words, this paper assumes at the start that the decision to assign responsibility to local government for providing a particular service to the public has already been made, and that a rationale for making that decision has been articulated, usually in the form of a legislative mandate. Therefore, the issue that remains for local government is how best to effectuate this mandate.(3) Local government must decide how it can best fulfill its responsibilities -- either through the use of its own employees and resources or by retaining a contractor to carry out some or most of the tasks necessary for service delivery. This article offers a critical evaluation of various approaches to analyzing the contracting out decision and provides a comprehensive framework for undertaking such analyses.

The Framework

The contracting out decision is not a simple matter of pure economic efficiency. Moreover, because responsibilities are rarely legislated in a vacuum, public service production decisions often have to deal with several objectives at the same time -- for example, trash, collection may be designed to satisfy public health goals and an aesthetic goal of cleaner streets, while simultaneously meeting specific minority employment goals or minimizing adverse environmental consequences stemming from the disposal of garbage and street litter.

The local government's legislative mandate determines which of these varying objectives or groups of objectives government managers must address. Those government managers then must choose between the different means available for achieving those objectives. If private sector alternatives (or other contracting arrangements)(4) can meet the stated service objectives, then public managers must compare each alternative delivery method as to direct costs, indirect costs and social costs. Such comparisons allow public managers to determine which means of reaching a particular objective or a particular set of objectives will yield the greatest benefit per dollar of costs to the public.(5)

Clear Specification of Tasks

The first and most important task facing any public manager is a clear specification of the tasks to be performed and a description of the level of effort to be employed in that performance. Making a rationale choice about the means to be employed is impossible without a specific end in mind. McKean cautions that "[o]verlooking any relevant objectives could lead to poor choices". …

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