Is Contracting out of Public Services still the Great Panacea? A Systematic Review of Studies on Economic and Quality Effects from 2000 to 2014

Abstract

This article presents the results of a systematic review of international studies on economic and quality effects of contracting out published in the period from 2000 to 2014. We conducted a comprehensive search of the literature and identified 49 relevant studies. There are three main findings of the systematic review: (1) cost savings documented in international contracting out literature have been decreasing over time; (2) cost savings have been much greater in technical services than in social services; and (3) economic effects have been twice as large in Anglo-Saxon countries compared with other countries. With regard to measuring the effect of contracting out on service quality, which is a vital component of any service delivery arrangement, very few studies assess this issue in a comprehensive manner. There is also a significant lack of studies that include measures of transaction costs, thereby making it difficult to evaluate the impact of contracting out on overall costeffectiveness of public service delivery. We conclude that generalization of effects from contracting out should be made with caution and are likely to depend, among other things, on the transaction costs characteristics of the service, the market situation and the institutional/regulatory setting.

Measuring and Managing Ex Ante Transaction Costs in Public Sector Contracting

“…While we find little support for the importance of management capacity on its own in our data, the substantive and statistically significant negative relationship between contract value and transaction cost expenditures strongly suggests positive scale effects that may be related to management. The lesson for local governments is that contracting may be the means to achieve efficiency and ultimately cost savings (Petersen, Hjelmar, and Vrangbæk ), but this could be contingent on investing in core administrative and management capacity.…”

The many outcomes from contracting out: The voice of public managers

“…For example, as economic returns from continued exposure to competition diminish (e.g. Petersen et al, 2017) -when in-house or private delivery of services is provided at cost-efficient levels -evaluations of contracting outcomes in terms of cost savings might simply be the wrong focus vis-à-vis the underlying realities. The economic accountability of the overall service delivery system, service quality and/or organisational development might be more relevant outcomes to evaluate in such scenarios.…”

“…Hodge, 2000) have provided summaries and discussions of different types of outcomes, no authoritative lists of contracting outcomes are readily available. Over the years, most of the studies and systematic reviews have explored contracting outcomes, with a predominantly policy-driven interest in economic outcomes related to expenditure levels and cost savings, and to some degree addressed quality issues (Alonso et al, 2017;Bel et al, 2010;Boyne, 1998;Domberger and Jensen, 1997;Donahue, 1989;Hodge, 2000;Petersen et al, 2017). A few studies have studied and discussed problems with the quality of privately produced services more independently through the concept of 'accountability' (e.g.…”

“…Overall, research interests in contracting outcomes in the private delivery of public services have ranged from a narrow, unidimensional focus on economic performance (e.g. Boyne, 1998;Hodge, 2000;Petersen et al, 2017) to broader multidimensional 5 Version accepted for publication in Planning and Environment C: Politics and Space performance foci, such as various forms of 'contract accountability' and different types of outcomes and impacts (e.g. Amirkhanyan et al, 2007;Andrews and Van de Welle, 2013;Fernandez, 2009;Lindholst, 2017;Romzek and Johnston, 2005).…”

“…The literature on contracting outcomes reveals that the current stock of knowledge is predominantly based on quantitative approaches and evaluation criteria driven by economic perspectives concerned with public expenditures, cost savings and to some degree quality effectsa concern tightly aligned with official objectives -or the promises -in most public policies and reforms promoting contracting out (Alonso et al, 2017;Bel et al, 2010;Boyne, 1998;Domberger and Jensen, 1997;Donahue, 1989;Hansen, 2010b;Hodge, 2000;Petersen et al, 2017).…”