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The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Stephen G. Harding
September 8, 2015
Government contracting with outside agencies is nothing new. In 1994, the International City/County Municipal Yearbook stated that the average American city contracted out approximately a quarter of its municipal services. In 1993, State Trends and Forecasts reported state governments contracted out roughly 14 percent of their functions. Interestingly enough, the release of this data correlates with the tenants of the “New Public Management (NPM)” and the 1992 publication of Reinventing Government by David Osborne and Ted Gaebler. NPM, with its recommended management themes predicated on economic rationality, citizens as customers, decentralization, public entrepreneurship, privatization and the reliance on market forces, more than implied government needs to run like a business.
Ironically, in the quest to improve efficiency, the impetus for government to adopt businesslike procedures was already present. By stating, “To make its business less un-business like,” Woodrow Wilson, in his 1887 Essay on Administration, provided a theoretical basis for the adoption of business methods in government. A century later, NPM provided the actual operating manual. One of its recommended methods is the practice of competitive governmental contracting with nongovernmental players.
What more could mirror a businesslike approach to efficiency and cost effectiveness than utilizing nongovernmental players to deliver specific public goods and services? In its fiduciary responsibility to the taxpayers, government’s role is to ensure strict adherence to cost savings through the competitive bid process, performance monitoring and contractual oversight. The nonprofit and for-profit sectors contract with outside organization for specific services and products and so does the government.
Motives–Why Does the Public Sector Pursue Alternative Public Service Delivery Systems?
Beyond the notions of efficiency and cost effectiveness, what are the motives behind governmental contracting? In his text, Cities and Privatization: Prospects for the New Century, Jeffrey D. Greene suggests four underlying orientations that serve to motivate governmental agencies in the pursuit of what is now described as alternative public service delivery systems.
Survivalist Orientation: The fiscal stress of the organization provides the main impetus for cost cutting.
Market Orientation: Fiscal stress may be present but there are overriding beliefs within the organization, the political body or the community at large that government needs to allow the power of competitive market forces to dictate the costs of doing business.
Expansionist Orientation: This is where a municipality aspires to move to a higher plane in the delivery of public services. It has the wherewithal, the resources and the motivation to be on the cutting edge of governmental innovation.
Maintenance Orientation: In this instance, a city takes action that is only necessary to maintain its status.
As this outline suggests, the motives for contracting governmental services are more complicated than just the pursuit of efficiency and cost effectiveness.
Methods–Alternative Public Service Delivery Systems
Governmental contracting takes many forms. In the 2014 International City/County Management Association (ICMA) publication, Alternative Service Delivery: A Readiness Check, the following outline provides a level of clarity for the various forms of governmental contracting.
Privatization is defined as the government getting out of the service or product completely. Privatization involves a decision to change a government-owned and government-operated commercial activity or enterprise to private sector control and ownership.
Outsourcing is the concept of taking internal organizational functions and paying an outside firm to handle them. Outsourcing is done to save money, improve quality, obtain specialized services and expertise or free organizational resources for other activities.
Managed competition is when a public-sector agency competes with private-sector firms to provide public-sector functions or services under a controlled or managed process.
Inter-local Agreements (ILA) are contracts between government entities that enable them to work with each other in the interest of cooperatively sharing resources for mutual benefit.
Service consolidation focuses on agreements between governments to merge existing departments into one unit that is overseen by representatives from both governments.
Public-private partnerships or P3’s, are long-term, strategic contractual agreements between a local government and a private sector entity. Skills and assets of each sector are shared in delivering a service or facility for the use of the public and where each party shares in the risks and rewards in the delivery of the service and/or facility.
Conclusions and Concerns
As outlined in Alternative Service Delivery: A Readiness Check, even the methods to contracting are complicated and require a thorough understanding of what it takes to do it right. Each governmental organization contemplating contracting needs to assess its true motives and its own managerial, fiscal, political and corporate cultural capacities necessary to conduct a successful governmental contracting system. Each organization needs to ask, “Are we reacting to true economic concerns, a reaction to the madding crowd or a true appreciation to improve public services?”
There is one other concern. In his essay, Privatization and Public Private Partnerships, E. S. Savas states, “Contracting presents the every present principal agent problem: Is the agent, the contractor, pursuing the principal’s (governments) goals or his own?” As such, each governmental organization has to assess how businesslike should it be.
Author: Stephen Harding is an adjunct professor in the Master of Public Policy and Administration program at Northwestern University. Previously, he served as city manager in the cities of Murrieta and Jurupa Valley California and as president of the City of San Diego’s Southeastern Development Corporation. Harding’s private sector experience includes vice presidencies in the real estate development and municipal consulting industries. Email: [email protected].