Is contracting out cost effective for routine government work?


Contracting out is one of the major management practices carried out in all levels of government. The present focus of contracting out comes from the up-surging alarms over increasing demand and tight budgets for the public service. Numerous scholars have a belief that contracting out offer a way of decreasing expenses and up surging efficiency and giving a program for government to be more inventive, flexible and creative in its dealings (Ni & Bretschneider, 2005). Motivated by the nationwide reinventing government program as well as the global New Public Managing movement, contracts of government with the Non-Governmental Organization and private sectors have surged sharply in diversity and capacity of service area.

Research Question

  • What is the impact of communication and joint problem solving between the parties after contract award?

Literature Review

The reviews that speak about contracting out are wide and unsystematic. Many scholars that have contributed to these reviews come from numerous fields like legal studies, business, public policy and administration.  Most of these works are published in edited volumes, peer journals and monographs. Attempting to organize these literatures is not a small task. But, a closer reading and understanding of the literatures starts to indicate two different theoretic approaches or concepts to contracting, both which talk about the issue of contracting out effectiveness: collaborative approach and conventional wisdom perception. Additionally, policy implementation concept provides its own insights concerning contracting out effectiveness.

The Conservative Wisdom Viewpoint

From this theoretic viewpoint, contracting is a mainly linear and rational procedure akin to many administration approaches comprising organizational development, goal setting and strategic management. Conservative wisdom viewpoint illustrates that the link between parties to the agreement essential is a discrete. Several instruments ought to be in place to permit the government to thoroughly monitor and regulate the conduct of the contractor. Many of the first works issued or printed in 1980s mirrors this theoretic viewpoint (Smith & Smyth, 1996), even though this viewpoint continues to be articulated one of the current works on contracting out, for instance (Fernandez, 2004).

Conservative wisdom on contracting out illustrate that the contracting procedure moves through a sequence of steps or stages bignning with the choice to contract out a service like that of security. Government officers first should outline or describe the service and then carry out a practicability research to evaluate the effect of contracting out on quality and cost of service. If the outcomes specify that the choice to contract out is a workable, the procedure passes on to the solicitation step (Sclar, 2000). This step encompasses its own sequences of phases, comprising developing a statement of work that singles out the performance standards, activity’s work requirements and goals; preparation of solicitation file; largely publicizing the solicitation; as well as holding a pre-proposal or pre-bid meeting with possible providers to describe the necessities and respond to fears and queries (Fernandez, 2004).

Factors that affect contracting out effectiveness include but not limited to: financial resources, political support, specialist in contract management and assessing the ability of the contract to perform previous contract award (Hanks, 2014).

Relational Contingency and Contracting Theory

Relational contracting comprises more open-ended and flexible relationships maintained by frequent contract revitalizations. In relational contracting, permissions and requirements naturally are non-specific, longwinded and non-measurable. Subsequently, the parties come to depend on wide-ranging joint preparation, haggling, and teamwork throughout the entire contract to “fill in” some of the gaps in the first contract (Center Global Development, 2014). Standards of behavior, shared norms and values and mutual trust that evolve as the connection unfolds serve to help mutual adjustment among the parties and make the connection more adjustable to evolving eventualities. This method of contracting out has raised alarms regarding answerability and caused some specialists to think whether relational contracting encourages slack contract implementation, bribery, nepotism (Romzek & Johnston, 2002). Presently, nevertheless, there seems to be slight if any experiential evidence to prove such uncertainties.

Remarkably, some of the literatures on relational contract claims that there is no “one appropriate method” to deal with the contracting out procedure efficiently (for instance (Fernandez, 2004).  In some circumstances—like when there is significant rivalry amongst providers, when the uncertainty level or intricacy is little, and when the agreement involves a short, distinct link that does not need big transaction-specific investments, several of the features stressed by the conservative wisdom can be effective strategies (Fernandez, 2004). Nevertheless, if the government is challenged by high task uncertainty, thin markets and intricacy, or a circumstance that necessitates the contractor to make a deal or a contract- 20 specific investments (like high asset-specificity), a relational method to contracting that affords the parties greater flexibility, will be more effectual.

Assessment of the Experiential Evidence Concerning Contracting Efficacy

In spite of the plenty of literature that has been printed on contracting out, specialists have fallen short of sufficiently elucidating contracting out efficacy and of providing dependable, well-validated guidance on enhancing the act of contracting for services. Numerous correlated aspects account for this state. Firstly, virtually all of the experiential study on the results of contracting out has concentrated barely on effectiveness or service quality, whereas deserting or ignoring other imperative magnitudes of contracting efficacy like response to the government’s needs, customer satisfaction and lawful consent (Utt, 1995). Secondly, the works contains plentiful proposals and prescriptions which have not been tested empirically. In addition, many of the work that talks about the contracting efficacy issue or performance are graphic researches of one case or a few numbers of cases. Lastly, scholars have revealed a stronger propensity to approach the contracting out efficacy from a single hypothetical viewpoint like principal-agent theory, and to concentrate on a few descriptive variables. With the exclusion of (Sclar, 2000) there have been no serious attempts to develop a wide-ranging descriptive model of contracting out efficacy and to test it using a large dataset.


  • Dependent (DV) is the dependent variable of the study is contracting out effectiveness.
  • Independent variable(s) (IV) include: communication and joint problem solving after contract award.


The extent of communication and joint problem solving between the parties after contract award shall have a greater positive effect on contracting efficacy at a higher levels of task uncertainty as compared to at lower levels of task uncertainty.

Why Variables are important

Contracting out effectiveness is an important variable because it is the overall outcome of the research when adjust communication and joint problem solving during the contract.

Communication and joint problem solving after contract award are more important because when a job is done by the contractor is complicated there is substantial uncertainty regarding the appropriate means for attaining the objectives of the agreement, effectual contract management appears to involve broad communication as well as joint problem solving amongst the parties in the entire contract (Romzek & Johnston, 2002). A higher degree of job intricacy and uncertainty regularly stops public officers from writing a wide-ranging and comprehensive contract stipulations, because the contract provisions as well as the means for attaining them might be vague during the term of the contract. Similarly, higher task intricacy and uncertainty upsurges the probability that some of the provisions of the contract shall be inaccurate. The reason for focusing on these variables is that contracts that involve a higher degree of uncertainty and intricacy naturally need that the parties communicate and interrelate regularly to make required changes or modifications in work procedures, prices, quantities and performance standards and to correct some of the errors in the original contract document (Sclar, 2000).

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