Local Government Contracting Service

Where Are We on Local Government Service Contracting?
Author(s): Gilbert B. Siegel

Source: Public Productivity & Management Review, Vol. 22, No. 3 (Mar., 1999), pp. 365-388
Published by: Taylor & Francis, Ltd.
Stable URL: http://www.jstor.org/stable/3380709
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WHERE ARE WE ON
LOCAL GOVERNMENT
SERVICE CONTRACTING?
GILBERTB. SIEGEL
ofSouthern
California
University
outhas beena keyalternative

Becausecontracting
bywhichcities,counties,and
haveattempted
to cope withtheirproblemsof diminished
revenue
specialdistricts
demandsforservicesand fortheirimprovement,
and becoupledwithunrelenting
is anincreasingly
usedalternative
continuous
bylocalgovernments,
causecontracting
andresultsin servicecontracting
is worthwhile
and,
oftheory,
practice,
monitoring
Thisarticleendeavorsto recapitulate
relevant
worthdiscussing.
literature
therefore,
the
ofservicecontracting,
theenvironment
onthesubjectunderthreemajorsubtopics:
Thesetopicscapture
theprincipal
andevaluative
research.
subprocessofcontracting,
underwhichthedomainofservicecontracting
appearstobe ocjectsintheliterature
areresorting
tothis
The contextliterature
expresseswhylocal governments
curring.
andtheextent
ofthisaction.Theprocessofcontracting
forservicedelivery
alternative
forsuccess.Finally,a scanofrebecauseitdescribespractices
necessary
is important
areasin whichsuccessand
shouldprovideguidanceaboutfunctional
searchfindings
andprocess
failuremightresult,otherthingsbeingequal,suchas theenvironmental
bothempiricaland nonempirical
research,
factors.
Withtheexceptionof evaluative
in contracting
outforservicesbylocaljurisdicsourcesarecited.We areinterested
ofthestateandfederal
areoutsideofthescope,as
governments
tions.Thus,initiatives
andproduction
alternatives
suchas vouchers,
franarevariousotherserviceprovision
and
divestiture.
chises,volunteers,
TheEnvironment
ofServiceContracting
THE EXTENT OF CONTRACTING IN LOCAL GOVERNMENTS
has becomea freof reasons(to be discussed),servicecontracting

For a variety
MirandaandAnderthefinaldecadeofthiscentury.
chosentechnique
during
quently
thatsomeservicesappeartobemoresuitablethanothsen(1994,pp.28-29)comment
and nonprofitcontractors,
based on an
ers for contracting,using for-profit
& Management
PublicProductivity
Review,Vol.22 No. 3, March1999 365-388
Inc.
C 1999 Sage Publications,
365
366
PPMR/March1999
1,504city/
Association(ICMA) surveyreporting
CityManagement
International
responses:
countyquestionnaire
ofhealthandhuinthedelivery
useofnonprofits
thegreatest
report
Local governments
andcounandartsprograms....Some41% ofmunicipalities
manservicesandcultural
[usand37% report
operations,
andartsprogram
forcultural
usingcontracts
tiesreport
formuseumoperations....
ing]contracts
mostpubtodeliver
organizations
aremorelikelytousefor-profit
Localgovernments
and
parksandrecreation,
publicsafety,
publicutilities,
services,
licworks/transportation
andcountiesreport[ed]
In 1992,forexample,54% ofmunicipalities
functions.
support
solidwastedisposal.... Morethanhalf
forcommercial
firms
withfor-profit
contracts
with.. . for-profit
contract
firm[s]forday
currently
surveyed
(54%) ofgovernments
care....
since1982fortaxbillanddata
firms
havebeendecreasing
withfor-profit
Contracts
(pp.28-29)
processing.
attributable
to]thelowercostofinformation
[perhaps
processing,
inthenumber
ofcitiesand
majorchangesthathaveoccurred
Table1recapitulates
betweentheICMA's 1982 and
of servicefunctions
contracting
countiesreporting
areas.
changesinvariousfunctional
Notethesignificant
1992surveys.
WHY CONTRACT?
ToucheRoss(1987,
although
go beyondcostsavings,
Thereasonsforcontracting
(1994,p. 26) showcostsavingstobe thetopadvanp.5) andMirandaandAndersen
indetheToucheRosssurvey,
reasonsfrom
out.Othersignificant
tageofcontracting
risk,obtaining
sharing
weresolvinglaborproblems,
scendingorderofimportance,
servicesnot otherwiseavailable,experiencing
higherqualityservice,providing
Otherobservers
time,andsolvinglocal politicalproblems.
shorter
implementation
Contractors
provide
additionalreasonsforcontracting:
have notedthefollowing
& Hill,1995;Cigler,
(Ammons
andhavemoreadvancedequipment
expertise
greater
are betterable to maximizeeconomiesof scale, especiallyin
1990); contractors
services(Hirsch,1964;Honadle,1984;Stein,1990;Stigler,1962);
capital-intensive
bidcosts(Honadle,1984);andifcompetitive
allowavoidanceofstart-up
contractors
andless wasteful
firms
aremorecost-effective
dingis used,thenprofit-maximizing
thangovernment
agencies(Savas,1987).FerrisandGraddy(1986) suggestthatconwithother
jurisdicis a needforserviceconsistency
whenthere
is appropriate
tracting
incentive
costreduction
policiesin exiswhentherearegovernmental
tionsand/or
to maintain
wageparitywiththe
tence,and Kelley(1984) statesthattheinability
to contract
for
privatesectorin a volatilelabormarketencouragesgovernments
services.
PROBLEMS WITH CONTRACTING
to
efforts.
According
contracting
issuesthatcaninhibit
Firstaresomecontextual
on theenvironofcontracting
dependsto a greatextent
Kelley(1984),theviability
forexample,
Theageofthecommunity,
proofthejurisdiction.
mentalcircumstances
havedevelopedthatmay
practices
ofthedegreetowhichinformal
videsanindication
ofoutputs
tasksintheproduction
(e.g.,informal
ofcomponent
obscureunderstanding
Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING
367
Table 1. PercentageofChangeof 10% or More in NumberofCitiesand

CountiesReportingUse ofPrivateand Nonprofit
ContractingBetween1982
and 1992 IntemationalCityManagementAssociationSurveys
Service
Percentage
Publicworks/transportation
Commercial
solidwastecollection
Snowplowing/sanding
Parking
lot/garage
operation
Bus transit
systemoperation/maintenance
Airport
operation
Disposalofsludge
Disposalofhazardousmaterials
Publicutilities
andmanagement
Electricutility
operation
meterreading
Utility
Healthandhumanservices
Insect/rodent
control
Day carefacility
operation
Childwelfareprograms
ofhospitals
Operationandmanagement
Publichealthprograms
treatment
Drug/alcohol
programs
Operationofhomelessshelters
Parksandrecreation
ofconvention
Operation
centers/auditoriums
Artsprograms
andartsprograms
Operationofcultural
ofmuseums
Operation
Supportfunctions
Fleetmanagement
andvehiclemaintenance
Heavyequipment
Emergency
vehicles
All othervehicles
Tax billprocessing
Data processing
14
10
15
22
19
19
38
58
20
15
22
-10
61
-19
10
59
14
48
39
29
30
27
-18
-15
Sources.1982data(N = 1,780):International
Association(1982,p. 3); 1992data(N =
CityManagement
1,504):MirandaandAndersen
(1994,Table3/5).
arrangements
wherebyhaulersremovelargeitemsfrominsidea houseratherthan
from
thesidewalkonly).Theexample,
inturn,
canresultinhiddencostsofserviceproductionthatarenotconsidered
indeveloping
estimates
ofthepresent
costofservices.
It is less likelythatnewercommunities
willhavedeviatedfrompoliciesandprocedurestotheextent
thatolderoneshave.Theform
ofgovernment
canmakea difference
inthedegreetowhichcostsavingsmight
accruefrom
Inhisresearch,
contracting.
Miranda(1994) foundthattotalandcommonfunction
andtotalemployexpenditures
mentarereducedbycontracting
outin council-manager
cities.By contrast,
in cities
underthemayor-council
does
not
these
results.
system,
contracting
produce
Citymancontrolis thought
to accountforthisdifference.
agercentralbudgetary
Thus,weak
control
oftheserviceprovision
managerial
where
processcanresultinanenvironment
savingsandimprovements
mightnotoccur.
368
PPMR/March1999
ofstrong
on contracting
oftenareassociatedwiththeexistence
Legalrestrictions
prosectorcontracting
employeeunions.Theseunionsdenythatprivate
municipal
can
managed,
ifproperly
employees,
benefits;
arguethatmunicipal
ducesimportant
andopposethelossofmembers'
jobs (Halachmi& Holzer,
achievethesameresults;
tothose
paywagesequivalent
is thatcontractors
1993).A commonlegalrequirement
savings.Pricontractor
potential
willvitiate
This,ofcourse,often
inthepublicsector.
Thesevarioftenpaylowerwagesandprovidefewerbenefits.
vatesectorproviders
Governeconomicfeasibility.
maybe thebasisofcontract
anceswithcitypractices
elected
a potentpoliticalforcecapableof influencing
mentunionsoftenrepresent
Wheretheunionsdonothavedominant
levservicecontracting.
andblocking
officials
thethreat
is
ofcontracting
orstrong
sometimes
publicsupport,
eragewithpoliticians
suchas changesinworkrulestoallow
formanagement
togainconcessions
sufficient
undercollectivebargaining,
efficiency
(Hatry,1988).However,
production
greater
thedecisiontosubcontract
servicesor
government
moststateshaveruledthateither
because
subjectforcollectivebargaining
of thedecisionis a mandatory
theeffects
conditions
(Sauter,1988).
working
eachhasimpactson employee
Starr(1988)cauintheliterature.
ofcontracting
described
Nextaredisadvantages
ofservices
oftenaremisleadperformed
comparisons
tionsthatsimplepublic-private
andsocialservicesrarelyhavethesame
schools,hospitals,
ing:"Publicandprivate
ofcosts,income,
or
clients....
and
Anysimplecomparison
kindsofstudents,
patients,
atanunfair
(pp.6-7).
disadvantage"
putsthepublicsectororganizations
productivity
ifthereis notcompetitive
bidcancomefrom
competition,
Although
goodresults
one
canbe worsethana governmental
monopoly
ding,thenitis arguedthata private
be abletoholdthecityhostagetoprice
might
(Kelley,1984).Sole sourcecontractors
suchas wherethe
areinvolved
especiallywheremajorcapitalexpenditures
raising,
inthenumber
collection
fleet(Miranda,
itsrefuse
1994).Limitation
cityhasliquidated
butnotuncommon
obingeneralis a dangerous
ofviablebiddersintheenvironment
tosuccessful
struction
contracting
(ICMA, 1989;Kettl,1993a;Mercer,1983).A limtoseekhigher
inmarkets
bidders
prices,andat
tempts
suppliers
itedpoolofpotential
demandchangesinagreedthemtoopportunistically
thepostcontract
stage,ittempts
cannot
beeasilyreplaced
& Vining,
(Globerman
terms
becausethecontractor
oncontract
1996).
andknow-how
tothe
resultinlossofexpertise
outofa function
might
Contracting
1992).Also,workforce
local government
(Halachmi& Holzer,1993;Wisniewski,
outa function.
becauseofthedecisiontocontract
diminish
merely
might
productivity
a decisiontocontract,
affected
emthatfollowing
Timmins
Forexample,
(1986)found
for
ployeesbeganusingaccruedleave forjob searchesandusingagencyfacilities
phonecalls onjob searches.Although
copyingresumesandmakinglong-distance
are
ifdisplacedworkers
forthejurisdiction
therewillbe fewfinancial
consequences
ifthese
inthelocality,
orcaneasilyfindpayingpositions
absorbedbythecontractor
suchas public
be economicrepercussions
thentheremight
do notprevail,
conditions
oftotalspending
andreduction
(Prapowerinthecommunity
assistance
expenditures
ofoutputs
anddistribution
control
overquality
might
ger& Desai, 1996).Government
bejeopardizedas well(Ferris& Graddy,
1986;Miranda,1994).
369
sometimes
Localjurisdictions
toevadeaccountability
attempt
bycontracting.
Kelley(1984) arguesthatultimate
cannotbe removed.
responsibility
Attempted
evasion
ofdiminishing
ofresponsibility,
hastheeffect
citizenaccessbyremoving
however,
decisionsfromthepublicrealmwhereopendiscussioncreatesopportunities
forcriticismandmutualpersuasion
(Starr,1987).Onceserviceprovision,
as policymaking,
is
somepolicymaybe determined
separatedfromproduction
bycontract,
bytheproviderratherthanby thecontracting
official(Brudney,
government
1987). Contract
priceoftendoes nottakeintoaccountthecostofmonitoring
thecontract
(Miranda,
do notdo a goodjobofproviding
1994).Local governments
ofcontractors
oversight
in
& Struyk,
anycase (Dilger,Moffett,
1997;Donahue,1989;Kettl,1993a;Miranda&
Andersen,
1994;Savas, 1987).
Contracting
mayresultina lesseningofpublicwillandwelfareconsiderations
as
ofthecontract
is
insteadofonpublicaccountability
emphasis placedon theintegrity
(Bailey,1987;Halachmi& Holzer,1993).As examples,
theeffects
ofcontracting
may
be especiallyheavyonminority
becauseofminorities'
employment
relianceonpublic
jobs (Kohn,1986;Starr,1987;Suggs,1986);contractors
mighttendto serviceonly
customers
and difficult
easy and profitable
to
("creaming")whiletheunprofitable
serveareneglected(Barnekov& Raffel,1990); andprivatesectorproviders
might
promoteinequitiesindistribution
suchas denying
servicestothosewhocannotpay
ifdistributional
(Miranda,1994). Furthermore,
goals are important
(e.g., targeting
orlow-income
tominority
benefits
oftenis diffigroups),thencontract
specification
cult(Ferris& Graddy,1986).
outalso createsrisks(Kettl,1993b)to theintegrity
ofpublicservice
Contracting
delivery;some of theseare corruption
potential(AmericanFederationof State,
andMunicipalEmployees,
ofinterest,
County,
servicedisruption
1987),conflicts
potential
whencontractors
donotperform
ofinflexibility
andmanagement
well,creation
ofrefusecollectors
problems(e.g.,inability
to convert
to snowplowing),
equipment
loss ofimportant
sourcesofinformation
anddatasharing
bygovernment,
thatmight
overothers(Halachmi& Holzer,1993).
givean advantagetosomeparticipants
TheContracting
Process
DEFININGSERVICESTO BE CONTRACTED
Donahue(1989) describesthebestcandidate
functions
as thoseforwhichthereare
clearobjectivesandtheservicesaretangibleandcan be easilyspecified,
measured,
andmonitored.
Prager(1994) arguesthattosuccessfully
thepublicjurisdiccontract,
tionshouldbe abletotakeadvantageofeconomiesofscaleandscopeofworkwhen
cannot.Servicesthatcan be providedthrough
contractors
competitive
arrangements
canyieldthebenefits
ofa dualyardstick
togaugeservicestrength
andweakness(Savas,
withcontractors,
1977a,1977b,1981).Ifthemunicipality
thenitretains
competes
cainthefunction
andallowsthejurisdiction
tointervene
pacityandexpertise
ifa contractorfailsto meetrequirements
(Ferris& Graddy,1986; Halachmi& Holzer,1993;
servicearrangements
Hatry,1983; Savas, 1981, 1987). Competitive
based on geographicalareashavebeensuccessful(Osborne& Gaebler,1992).
370
PPMR/March1999
IN-HOUSE OR CONTRACT: A MAKE-OR-BUY DECISION
thereis theneedfora cleardescripthisissuefora servicefunction,

Inresearching
is notnecessarily
obvious.Examplesfrom
Taskcontent
tionoftaskstobeperformed.
toanareprovided
byonedepartment
Kelley(1984) includethatservicessometimes
ofthefact(e.g.,specializedservicessuchas wirotherwithout
recognition
anyformal
aresignificant
butare
operationally
sometimes
ing),servicesofa "jack-of-all-trades"
andsmallcommunities
often
usea poolofemployees
a number
toprovide
overlooked,
services.Iftheseservicesarecontracted
out,thenwhatwillbe donewith
ofdifferent
both
the
bidder's
process
andtheprivate
Ultimately,
government
theseemployees?
on
work
tasks
requirements.
Accordingly, must
proposalmustbe evaluated identical
and
be defined
(e.g.,backyard
pickupoftrashvs.sidewalkpickupoftrash),
precisely
inperformance
mustbe
andterrain
variations
thatwillmakea difference
geographic
sometimes
accountfor
1992).Thesevariances
described
(Kelley,1984;Wisniewski,
inservicedelivery.
qualitydifferences
ofcertain
issues(U.S. GeneralAcTherealso shouldbe a consideration
strategy
forin-house
Shouldgroups
competition?
1997).Whatis thepotential
counting
Office,
bidforthecontract?
be allowedtocompetitively
Shouldin-house
units
ofemployees
fordifferent
orotherwise
differentiated
theservices,
geographic
perhaps
alsoprovide
be used?Optingforsomeofthesestrategies
contractors
also
sectors?Can multiple
andnonunion
resistance.
Jackson
(1997)
employee
organized
might
helptomitigate
to minimize
impactson thelaborforce
providesa morecompletelistofprograms
is selected(p. 125)(Table2).
servicedelivery
whenprivate
costofservices
mustbedetermined.
Thisshouldincludeboth
in-house
Thepresent
touseactualcostsrather
costs(Wisniewski,
directandindirect
1992).Itis important
tendtoomitmuchdata,especostsas muchas possible,forthelatter
thanbudgeted
systems
(Berenyi& Stevens,1988;Savas,
ciallyin theabsenceofcostaccounting
ofcurrent
andbidderproposals
is esoperations
1979).Oncethebasisforcomparison
be
of
contract
administration
must
estimated
as
well.
These
costs
implicit
tablished,
dispoincludeinspection
costs,conversion
costs,andgainorlossinthegovernment's
& Skibniewski,
1988).
sitionofcapitalassets(Jarrell
andmustbe addedtobidderproposals.TheexisThesearecostsofcontracting
andallocating
suchas thoseforcostaccounting
tenceofsystems
interdepartmental
a prerequisite
tocontracting,
buttheirabsenceoften
servicechargesis notnecessarily
ofcosts(Coe & O'Sullivan,1993;Holder& Kermer,
leadstounderestimation
1981;
has conOsborne& Gaebler,1992;Savas, 1979;Swiss,1991).Oncea jurisdiction
andbidding.
as a launching
is a priceprecedent
there
padtofuture
negotiations
tracted,
Thus,thereis a needforaccuratebaselinedataon coststhatonlythesetypesofacsupply.
counting
systems
mustbe evaluatedagainstthepresentor an imservicealternatives
Ultimately,
tobidderproposals.Hatry(1983) describeshis
andrelative
provedin-housesystem
thecostofthegovernment
servicedelivery
alternatives:
forevaluating
criteria
service,
thequalchoicesavailabletoserviceclients,
thedegree-of
costtocitizens,
thefinancial
thestaying
oftheservice,thepotential
distributional
effects,
power
ity/effectiveness
theeaseofimplementation,
andtheoverallimpact
forservicedisruption,
andpotential
Siegel/LOCALGOVERNMENT
SERVICECONTRACTING 371
Table2. Programs
andPoliciestoMinimize
Potential
Displacement
Effects
andprocedures
Internal
programs
with
forthoseworkers
whoremain
*Jobenrichment,
payincreases,
*Implement
two-tiered
salary
schemes,
hiring
part-time
workers
ata lowerratetohandle
someof
thework
thatistobecontracted
toother
* Transfer
employees
government
jobs
*Preferential
inhiring
within
treatment
public
agencies
*Retain
workers
andtransfer
them
toother
displaced
positions/departments
*Establish
toidentify
andsecure
placement
programs
jobswithin
public
agencies
fordisplaced
*Extend
andhealth
benefits
workers
retirement
coverage
and/or
*Offer
todisplaced
workers
earlyretirement
specialseverance
paypackages
useofprivate
service
Selective/strategic
delivery
*Privatize
services
onlyneworexpanded
*Match
totherateofnormal
attrition
therateofprivatization
*Institute
onexternal
a freeze
andabsorb
workers
hiring
displaced
sector
contract
Private
specifications
ofrefusal
todisplaced
*Require
contractors
tooffer
first
workers
right
*Require
contractors
touphold
action
equalemployment
opportunity/affirmative
policies
*Require
tohiredisplaced
workers
withwageandbenefit
contractors
packages
comparable
tothose
inthepublicsector
(see also Ferris& Graddy,1986;Fisk,Kiesling,& Muller,1978;Meyer& Morgan,

1979; Savas, 1987).
ESTABLISH PERFORMANCE STANDARDS
can be implemented
Two ofHatry'simportant
criteria,
qualityandeffectiveness,
standards.
through
performance
Ideally,designofmeasuresareprecededbyanalyzing
fromstatutes
andhistoric
desiredoutputs
andoutgoalsderiving
practices,
discussing
in andoutofgovernment,
a strategic
comeswithmajorcustomers
writing
plan,and
Buta minimum
once
drawingan input-output
mapoftheorganization.
requirement
is toobtainagreement
betweenpolicymaking
andoperating
taskshavebeenidentified
suchas citizens,on appropriate
levelsandperhapsotherstakeholders,
of
indicators
andperformance
program
(Hakes,1997,p. 10).As pointedoutbyParks(1984),citiideasaboutwhatis highperformance.
zensoftenhavesubjective
Indicators
suchas clearancerates,property
recovery
rates,andcrimeratesareindicativeof a portionofwhatcitizenshopetheirpoliceaccomplishbutareacknowlofthepolicetask.Citizensmayemployadditional
edgedtoreflect
onlya smallportion
ofresponsetoservicerequestsas wellas demeanor
suchas rapidity
andacindicators
tionsat crimescenes(Parks,1984,p. 119).
arerequired.
Professional
andtradeassociations
someUsually,severalindicators
thatmaybe helpfulguides.The Governmental
Actimeshavedevelopedstandards
a number
of"serviceefforts
andaccomplishBoardhaspublished
Standards
counting
& Herhold,1990;
fordifferent
localgovernment
functions
ments"standards
(Burnsby
Carpenter,
Ruchola,& Waller,1992; Drebin& Bannon,1992; Hatry& Fountain,
1989;Hatry,
Fountain,
Sullivan,& Kremer,
1990;Parry,
Sharp,Vreeland,& Wallace,
372
PPMR/March1999
of
a number
1982;Rubin,1991;Wallace,1990).Hatryandhiscolleaguespublished
1977).
et
al.,
for
Hatry
(see, example,
theUrbanInstitute
earlierthrough
documents
performance
andcontract
forproposals
requests
willbeusefulinpreparing
Standards
monitoring.
andtheywillbe an essentialbasisofperformance
specifications,
PERFORMANCE MONITORING AND REPORTING SYSTEMS
onservicequalinformation
is toprovide
monitoring
Thepurposeofperformance
toesti1992).Usually,thereis no attempt
results(Wholey& Hatry,
ityandprogram
causedobservedoutcomes(Wholey& Hatry,
to whichtheprogram
matetheextent
to
shouldbeexamined
thatthesituation
tothemanager
mayindicate
1992).Outcomes
shouldbe usedto
systems
monitoring
actions.Performance
appropriate
determine
totaractualresults
ortocompare
topriorperformance
performance
comparecurrent
types.
of
a
list
monitoring
91)
developed
p.
Rehfuss
(1989,
levels.
performance
geted
as wellas thedegree
fortimeliness
andreviewed
canbe checkedforaccuracy
Reports
inunscheduled
and
periodic
met.
Scheduled
are
being
requirements
towhichcontract
espemade
be
can
such
inspections
canbe made.Harvey(1992) addsthat
spections
can
resolution
andtheir
Citizencomplaints
as itis happening.
ciallyofservicedelivery
perFinally,
canbe usedtoreviewoverallcitizensatisfaction.
Surveys
be reviewed.
as described
byWholeyandHatry
areappliedtodatagathered
standards
formance
(1992).
most
alternatives,
ofservicedelivery
ininitialevaluation
Asidefromdeficiencies
and analyzingforpossible
do notdo a goodjob of monitoring
local governments
modes.MirandaandAndersen's1992ICMA
ordelivery
changein servicedelivery
cities
1994)revealedthatmorethanhalfofreporting
survey(Miranda& Andersen,
is evaluated,
atall.Whenservicedelivery
do notevaluateservicedelivery
andcounties
addressed.
factors
arethemostimportant
standards
withdelivery
costandcompliance
MirandaandAnevaluatecitizensatisfaction.
Morethanhalfofthelocaljurisdictions
were"widely"
andfieldobservations
ofdata/records
dersen(1994)statedthatanalysis
(Dilger
survey
ofgovernments
(p. 34). A morerecent
number
citedbyanundisclosed
withmostrecitiesshowedthatfewdidnotmonitor,
etal., 1997)ofAmerica'slargest
results.
andformal
inspection
complaints
viewingcustomer
Research
Evaluative
arecategoinlocalgovernments
services
studiesofcontracting
research
Evaluative
Itshouldbenotedthatfindings
intheAppendix.
fieldandsummarized
rizedbygeneral
onereviewer
so. Forexample,
evenideologically
arecontroversial,
thisresearch
from
forcontracting
bythesestudies
totheimpressive
gainsreported
referred
ofthisarticle
and"justbiasedbaloneyfrompeopleideologiandunsubstantiated"
as "overblown
callydisposedtotoutprivatization."
the
fromthesestudiesincluding
distilled
aresomegeneralizations
Thefollowing
Mostofthesearenotrepetitive
Appendix.
generalfieldsinwhichtheyarelistedin-the
arenot
theAppendix
from
Citations
sections.
inprevious
ofthewisdomrecapitulated
tounderthesubjectsinparentheses.
andmaybe referred
repeated
Siegel/LOCAL GOVERNMENT SERVICE CONTRACTING
373
* In somerevenue-producing
areso subjecttoeconomicinterest
enterprises,
governments
thatlow pricingofservicesandinability
tofinanceimprovements
grouppressures
from
operating
revenuesresult(airports,
transit).
confront
thedilemmaofpoliticalchoicebetweenunacceptabil* Governments
frequently
servicequalityandinability
toafford
ityofcontractor
high-quality
in-houseservicesin
thesefields(daycare,humanservices).
* Becauseofthepotential
forpoliticalinfluence
thatcanleadtodefeatofpurpose,
itprobatoperform
forprivatesectorcontractors
someservices(debtcollection,
blyis better
hospitals,transit).
* The poorqualityofprecontracting
research
bygovernments
vitiatestheworthofdecihumanservices,multiple
sionson contracting
(education,
services).
is a majorfactor
oftheeconomicsectoroftheserviceprovider,
* Competition,
regardless
costsofservices.Theinverse,
andcontrolling
lackofcompetition,
inreducing
resultsin
andhighcosts(electricservices,solidwastecollection).
inefficiency
servicestendtobe moreexpensivein government
thanin theprivate
* Capital-intensive
sectorfora varietyof reasons(electricservices,housingconstruction,
publicworks,
wastewater
treatment,
watersupply,transit).
ofmanycontractors,
* Governments
needtoconsider
thepractices
whichmake
employing
as alternatives
tocontracting.
contract
servicesless costlyandmoreefficient,
Confrontonthesemeasuresshouldbe nomoredifficult
thanthedeciingin-housevestedinterests
solidwastecollection,
siontocontract
(fireprotection,
multiple
services,
education,
public works).
servicedelivery
* Contracting
willnotimprove
whenthereis unwillingness
ofgovernment
to serve(humanservices).
to payforclientswhoaredifficult
whenthereis a limitedpoolofpotential
* Contracting
cannotbe cost-effective
suppliers,
whentechnologies
aredifficult
to define,and/or
whengoals andstandards
areuncerservtain.Theinverseofthisleadstosuccessful
contracting
(humanservices,janitorial
ices,motorvehiclemaintenance,
payrollanddataprocessing,
publicworks,solidwaste
collection).
* Thereis evidencethatgovernment
serviceperformance
hasnotbeenimproved
bycontracting
(humanservices,property
assessment).
* Amongthepractices
ofcontractors
thatresultinmonetary
savingsoverin-houseproducandproviding
less generousbenetionofservicesis thatofpayinglowercompensation
welfaredependency,
fits.Negativeexternalities
and
mayresultsuchas unemployment,
in livingstandards
of low-income
reduction
persons(multipleservices,motorvehicle
maintenance,
publicworks,transit).
Conclusions:
LessonsLearnedFromContracting
It is clear thatthe incidenceof contractingis increasingin local governmentsand
thatlocal officialsgenerallyare satisfiedwithdoingit.Most oftheirgoals in contracting apparentlyare being realized. However, thereis a nagging concern expressed
aboutcontractorswho do notperformas expectedorare otherwisenotup to standards.
seems to resultfrominadequateprecontracting
reOne source of thisdisappointment
searchin definingand costingworkand in developingthecontrolsystempriorto seekworkcan include a numberof acing bids frompotentialcontractors.Precontracting
of in-houseadministrative
and delivery
tivities,perhapsbeginningwithimprovement
systems.Administrative
systemssuch as thoseforcost accounting,allocatinginterdepartmentalservicecharges,and developmentof serviceeffortsand accomplishments
standardswill greatlyfacilitatemanagementof both contractedand noncontracted
374
PPMR/March1999
will
rationalizing
itsimprovement
services.Eveniftheserviceis to be contracted,
theprocess.
clarify
candidates
somearebetter
butlogically,
Justaboutanyservicecanbe contracted,
wisdomstatesthatwinners
arelikelytobe thoseservTheconventional
thanothers.
oftangible
servicesthatcanbe measured
fortheprovision
ices withclearobjectives
evidencereviewed
demonstrates
thatcontracting
In fact,theresearch
andmonitored.
incostsavingsinthefieldsof
effectiveness,
orresults
improves
efficiency,
improves
construction,
parks,payroll
fireprotection,
housing
electric
services,
debtcollection,
solidwastecollection,
wastetransit,
publicworks,recreation,
anddataprocessing,
hasbeenlesseffecwatersupply,
andmultiple
services.Contracting
watertreatment,
assessment.
inthefieldsofhumanservicesandproperty
tiveorineffective
funappeartobeunderlying
andavoidanceofsolesourcecontracting
Competition
Thesectorofsuppliers
orwhether
is
competition
ofsuccessful
contracting.
damentals
relevant.
forhighly
Contracting
workforce
is notparticularly
bythein-house
provided
bidders
sometimes
canbefaciliis a paucity
ofqualified
complextasksforwhichthere
contractors
downa processintosubsetsforwhichseparate
maybe
tatedbybreaking
found.
orsystems
be copsuccessful?
Canthemethods
Whatis itthatmakesa contractor
The
success
of
these
the
need
to
contract?
contractors
even
precluding
ied,perhaps
useofcapitalsuchas levelsoflaborforcecompensation,
stemfromattributes
might
of
andresponsibilitysupervisors.
Copying
andgreater
authority
processes,
intensive
withotherorganizations,
to
publicorprivate,
consorting
thesemethods
might
require
andfreedom
ofactiontoachievethe
size,capitalization,
be abletomimiccontractor
ofhavingto
withthesituation
is confronted
In anycase,ifthejurisdiction
benefits.
contractor
ofduplicating
attribthenthealternatives
withonlyonesupplier,
contract
becomerealistic.
utesandjoiningconsortia
wisdomabouthowtodocontracting
successfully
ofgeneral
inthecategory
Finally,
ideas:
arethefollowing
It shouldbe
is overlooked.
andsupervision
* The costofcontract
frequently
monitoring
addedtocontractor
proposals.
contractors
thatmostjurisdictions
donotmonitor
extensively.
indicates
* Surveyresearch
* Attention
shouldbe giventothedesignofoptimalmonitoring
requirements.
topotential
externalishouldbe alertness
* Anaspectofthedecisiontocontract
negative
orfunctions,
othergovernments
onthelocaleconomy,
be impacts
govties.Thesemight
is mitigation
ofconsocietalgroups.Alsointhiscategory
ernmental
policies,orcertain
inTable2.
A number
ofideasweredescribed
workforce.
onanexisting
impacts
tracting
offunctional
* Inplanning
mustbe directed
totheretention
expertise
attention
tocontract,
is verydetheability
tosupervise
contractors
Obviously,
government.
bythecontracting
on thisexpertise.
pendent
375
Appendix
ResearchonLocalGovernment
ofEvaluative
Summary
or Subject
byFunction
Descriptions/Conclusions
ServiceContracting:
Airports
servicesleadtoinefficient
andotherairport
pricingpoliciesforlandingrights
Government
(Roth,1987).
tofinanceexpansionoffacilities
andinability
congestion
Day CareCenters
lowerwages,and
Privatedaycarewas foundto be 45% less costlydue to fewerteachers,
& Di Lorenzo,1983).
staff(Bennett
fewernonteaching
DebtCollection
werefaster
and60% lesscostlythanin-housegovernment
procedures
debtcollection
Private
& Di Lorenzo,1.983;
was 200% morecostlyperdollarpursued(Bennett
services.Government
1981).
Bennett& Johnson,
Education
(priinnonpublic
as wellas students
publichighschoolsdidnotperform
attending
Students
Researchhasbeencriticized
marilyCatholic)highschoolsintermsofacademicachievement.
amongselectioncriteriaof
schoolachievement,
important
forpre-high
fornotcontrolling
& Kilgore,1981;Levin,
Catholichighschools(Alexander& Pallas,1983;Coleman,Hoffer,
1987).
thatomitscapitalexpenditures
system
Costsofpublicschoolsaremaskedbyan accounting
1989).
(Lieberman,
thanpublicschoolsbecausetheroleofvoldo a betterjob
Privateschoolsdo notnecessarily
unteerhelpis notcounted(James& Levin,1983).
ElectricServices
regardless
costswerereducedbyabout11N%,
wheretherewascompetition,
In communities
concern(Primeaux,1977).
was government
ora private
theserviceprovider
ofwhether
ofin-housegovernin a comparison
producedlowerratesthandidregulation
Competition
Govmonopolies.
private
thatcompeteversusregulated
utilities
versuselectric
mentproduction
in thelowestratesduetotaxexemption
(Hellman,1972).
resulted
ernment
production
xhave11% lowercosts.Economiesofscaleoffset
thatfacecompetition
Municipalutilities
1975,citedin Hilke,1992).
atbigfirms(Primeaux,
efficiency
showed
electricutilities
andprivate
ofTexasandCalifornia
publicmunicipal
Comparisons
inoperating
costsandinvestormoreefficient
adjustedforscale,tobe as efficient
firms,
private
(Spann,1977).
producers
mentthanin-housemunicipal
andinvestcostswerefoundtobe 40% to75% higher,
electricgenerating
Municipalutility
firms
(Wallace&
hour,thanthoseofprivate
perkilowatt
mentcostswerefoundtobe40% higher
Junck,1970).
376
PPMR/March1999
Fire Protection
ConArizona,
byRural/Metro
inScottsdale,
perhousehold
Thecostoffireserviceprovision
inthethreecities
protection
Servicewasaboutonehalfthatforequivalent
tractFireProtection
inquality(Institute
difference
firedepartments.
Therewasnosignificant
servedbygovernment
1977,citedinPoole& Fixler,1987).
ofLocal Self-Government,
firm
fireprotection
servicesat 65% lowercoststhandida government
A private
provided
in costswereduetoeconomiesofscale,lowerinput
Differences
servicein a Denmarkstudy.
1983).
reservists
andlowerx-efficiencies
(Kristensen,
costs,andespeciallyuse ofpart-time
fireprotection
reducedcostsby20% to50%
frommunicipal
toprivate
contract
Switching
(Poole,1976;Smith,1983;bothcitedin Hilke,1992).
fireservicewithScottsdale,
in-housemunicipal
In a comparison
of Seattle,Washington,
was foundtobe 39% to 88% higherin
themunicipal
department
services,
Arizona,contract
1973,1974;Moore,1988).
costspercapita(Ahlbrandt,
Hospitals
ina number
ofpublichospitals
outthemanagement
No evidencewasfoundthatcontracting
firms
itwas foundthattheprivate
countieshadachievedcostsavings.However,
ofCalifornia
(Shonick& Roemer,1983,
at securing
revenues
management
thangovernmental
werebetter
citedinHatry,
1988).
Housing
housquality
tobe20% morecostlyperconstant
costswerefound
In-house
cityconstruction
in U.S. cities(Muth,1973,citedinHilke,1992).
firms
ingunitthanprivate
HumanServices
thatcostsdecreased
after
inNorth
Carolinafound
A study
childcareservices
ofallprivatized
as evidenced
servicequalitysuffered,
perchildratios,
bylowerstaff
on average,
privatization;
salaries.Qualityvariedbeandlowercaregiver
less equipment,
largergroups,largercenters,
cliofftheleastexpensive
had"creamed"
andnonprofit
Nonprofits
tweenfor-profit
providers.
in loweroperating
costsperchild
servedmoreaffluent
clients,resulting
entsandeventually
& Kahn,1989).
(Kamerman
in foursocialservices-mental
care,
health,long-term
A nationalreviewofprivatization
forthe
is littlesupport
thatthere
andchildwelfare-concluded
andtraining,
employment
youth
ofa fieldbya few
foundincludedominance
reducescosts.Problems
thatcontracting
conclusion
forthose
andlackofsupport
foronlylow-quality
services,
support
government
largevendors,
toserve(Gurin,1989).
mostexpensive
itsmentalhealthservicesduring1992-1993
Floridato privatize
An attempt
by southern
benefit
loss ofa generous
andfaltered
failedduetoemployeeopposition
mainlyon potential
& Chaykin,
to private
vendors(Becker,Silverstein,
packagebyemployeesto be transferred
1995).
didnotresultincomCarolinacounties
abuseprograms
ofsubstance
byNorth
Contracting
ofthepublicpurchasing
andunderstaffing
function,
byvendorsduetounderfunding
petition
between
officials
andlong-standing
inrelianceontrust
purchasing
relationships
whichresulted
decisions(Smith& Sayth,1996).
serviceagenciesinmakingcontracting
andprivate
377
ofmentalhealthservicesby a stategovernment
Attempted
privatization
degenerated
into
betweenthestateandprivate
inhigher
complexnegotiations
monopolies,
ultimately
resulting
& Pulice,1986).Theseservicesoften
costsandlowerqualityofservices(Schlesinger,
Dorwart,
hencetherelevanceofthisstatecase.
areperformed
bylocal governments,
A case studyofDane County,
revealedinadequaciesofcountymanagement
Wisconsin,
of
humanservicesprogram
duetolowcompetition
itscontracted-out
amongcontractors,
difficulty
ofdesiredoutcomes
anduncertainty
indefining
goalsbecauseofimpreciseness
oftechnologies,
inmonitoring
becauseofinadequate
difficulty
performance
goaldefinition;
inadequate
automationservices,andpooraccountability
becausecontractors
wereabletoinfluence
politicalofficials (Kettl,1993a).
Privately
suppliedprograms
operating
undercompetitive
biddingsaved20% to less than
60% overin-housesuppliedwelfareservices(Stevens,1984b).
In-houseversuscompetitively
contracted
private
servicesforvocational
rehabilitation,
child
fortheelderlyoftendevolvedintosingle-source
protective
services,andprograms
contracting,
firmsarepredominant
withlittleevidenceofefficiency
gains.Nonprofit
suppliers.
Improved
weretheprimary
forcontracting,
butnoquantifiable
program
characteristics
objectives
quality
is available(Hatry,1983;Wedel,Katz,& Weick,1980)
information
in humanserviceprogram
Greaterspecificity
out
requirements
impliedmorecontracting
& Imershein,
(Chackerian
1984).
JanitorialServices
Contract
forquality,service
janitorialserviceshad42% lowercosts,evenafteraccounting
levels,andeconomiesofscale (Stevens,1984a,1984b).
MotorVehicleMaintenance
costsforequivalent
or higher
costswere1% to38% belowin-housemunicipal
Contractor
ofoperating
butthenumbers
andoverheademploylevelsofservice.Wagelevelsweresimilar,
ees wereless due togreater
productivity
(Campbell,1988).
MultipleServices
Los Angeleswerecomparedon
Eightmunicipalservicesof variouscitiesin metropolitan
criteria
ofefficiency
andeffectiveness.
versuspublicservicedelivery
On average,with
private
heldconstant,
servicelevel,scale,andenvironmental
conditions
municipalservicesprovided
undercontract.
No significant
weremorecostlythanthoseprovided
difference
emergedwhen
was examined.Differences
wereaccountedforamongcontractors
serviceeffectiveness
who
andlesstenured
whoreceivedshorter
vacationleaves,andwho
tendedtouse younger
workers,
werelesslaborintensive
andhadmoredirectcontrol
hadlowerabsenteerates.Contractors
over
labor forceand equipment(Berenyi& Stevens,1988). This researchwas criticizedby
results
indicated
thatenvironmental
conditions
werenot
Wisniewski
(1992) becauseregression
examinedforrefusecollection.
revealedthateconomicandoperational
issuespredomiA survey
ofNorthCarolinacounties
incostsavings,the
wouldresult
natedamongreasonsgivenforcontracting
(i.e.,thatcontracting
andskilledpersonnel,
andtheopportunity
to improveservice
provisionof specialequipment
toaccountability
laterbecameimportant
as experience
quality)butthatpolicyquestions
relating
wasgained.Otherfactors
suchas monitoring
difficulties
andcontractor
withthecontractor
reliabilityproblemsalso ensued(Cigler,1990).
378
PPMR/March1999
Basedonananalysisof1982and1984ICMA data,contracting
outhada statistically
signifiinbothyears.A 10%increaseincontracting
cantandnegative
impacton spending
ledtoa 4%
The samewas foundforpercentage
decreasein expenditures.
offunctions
contracted.
These
findings
weremorelikelyto occurin council-manager
citiesthanin mayor-council
systems
(Miranda,1994;Stein,1990).
Basedona sampleof500U.S. citiesfrom
ICMA data,itwasconcluded
thatas external
prois usedmoreextensively,
duction
andemployment
cityexpenditures
decrease.However,
negaelasticities
thatmerely
tivecontracting
suggest
increasing
theuseofexternal
production
is not
likely,
on average,toresolvea city'sfinancial
difficulties
(Ferris,1988).
A survey
of100ofAmerica's
mostpopulouscitiesrevealed
thatmostweresatisfied
withprithatprivatization
wascarriedoutmainlytoreducecostsandimprove
vatization;
service;and
tobe morethan20% inpublicworks/transportation,
thatcostsavingswereestimated
morethan
morethan17%inhealthandhumanservices,
16%inpublicsafety,
morethan16%inparksand
andmorethan16% insupport
functions.
Mostrespondents
thatcitycomrecreation,
thought
orconsiderably
was somewhat
better
better.
Mostusedmorethanonetechnique
pensation
to
monitor
customer
and inspections.
contractors-mostly
complaints
Amonglessonslearned
weretheneedtomakecertain
thatcityrequests
forproposalswerethorough
fromcontracting
a concern
whether
lowbidders
andeasilyunderstood,
areactually
capableofperforming
tostanandmonitoring
evaluation
ofcontractors
dards,andtheneedforeffective
(Dilgeretal.,1997).
oflocalofficials
showedthat72% feltthatqualityofservicescontracted
A 1979survey
out
was favorable
(Osborne& Gaebler,1992,p. 89).
A survey
showedthefollowing
tocontracting
advantages
(indescending
orderofpercentage
ofresponse):
costsavings,
servicesnototherwise
sharing
risk,higher
qualityservice,
providing
available,shorter
implementation
time,and solvinglocal politicalproblems(ToucheRoss,
1987,p. 5).
Costofcontracted
services
30% lessthanin-house
services
inLos AngelesCounty
averaged
from1979to 1984(Savas,1987).
costwas 30% less thanin-houseservicesin La Mirada,California
Contracting
(Moore,
1987).
A studyofminority
workers
showedthatalthough
workers
were
displacedbyprivatization
inaboutthesameproportion
hiredbycontractors
as theyhadbeenbycitydepartments,
theprilowerwagesandbenefits
vateemployers
offered
thandidthemunicipal
agencies(Suggs,1986).
Based on an analysisof 1982ICMA survey
data,itwasfoundthatservicedataweremore
atexplaining
sectorchoiceincontracting
successful
thanwas a
(private,
public,ornonprofit)
choicemodel.The service-specific
modelincludedlaborintensity,
scaleeconomies,
producer
fornonprofit
needforstandardization,
degreeofcollectiveness,
constituency
preference
proinhealthandhumanservices,
andthepreexistence
ofnonprofit
duction
Theproducer
producers.
choicemodelwaspositedas boththedegreetowhichcontrol
mustberelinquished
toachieveefofthelocalgovernment
toconsider
thistrade-off
ficiency
gainsandthewillingness
(smallerand
withcost-reducing
communities
andpoorcommunilargercommunities,
incentives,
wealthy
ofunionized
ties,andthosewithlowproportions
publicemployees)
(Ferris& Graddy,
1986).
thatexamined
ofprivate
Morethan50 studiesweresurveyed
thecosteffectiveness
producserviceswereexamined
refuse
tionofpublicservices.A totalof19different
including
utilities,
andhousing.Ofthesestudies,
tobe cheaper
40 foundprivate
collection,
hospitals,
production
3 foundpublicproduction
tobe cheaper,
and5 foundnosignificant
difthanpublicproduction,
inthepublicserviceincreases
Itwasnotedthatcostdifferences
diminish
ference.
as competition
& Schneider,
(Borcherding,
Pommerehne,
1982).
Parks
inqualityin
was28% lowerincostandequivalent
maintenance
serviceforparkturf
Contract
within-houseservice(Stevens,1984b).
comparison
Payrolland Data Processing

higher
performed
within-houseservice,competitively
selectedcontractors
In comparison
1984).
servicewithcostsavingsof 15% (Valente& Manchester,
qualitydataprocessing
forqualityandotherfactors
betweeninwerefoundafteraccounting
No costdifferences
contractors
(Stevens,1984b).
houseserviceandprivate
PropertyAssessment
50% costsavingsandwerefoundtobe moreaccurate
Privateagencyassessments
provided
(Stocker,1973).
thatrequired
all property
tobe reappraised
rouFollowinga courtdecisioninMassachusetts
Aftercontrolling
fordifferences
contractors.
in
compliedthrough
tinely,mostcommunities
itwasfoundthattownsthatperformed
reevaluations
in-housespent19% lessthan
populations,
out.No dataon qualitative
differences
werepresented
(Carver,1989).
townsthatcontracted
inMichiganmunicipalities,
itwasfoundthatassessment
forseveraldifferences
Controlling
districts
werelessthanhalfthecostsofnoncontracting
districts.
However,
costsofcontracting
was foundtohavea negative
whichwas 10%
performance,
impacton assessment
contracting
(Lowery,1982).
lowerthanthemeanlevelforall districts
Public Works
citieswithpublic-provided
California
publicworksservicesand 10
A totalof 10 southern
was foundto be 22% to
serviceswerecompared.Contractor
withprivate-provided
provision
Lowercostlaborpractices
accountedforcontractor
30% lessexpensivethanpublicproduction.
able
vacationandleavedaysforequivalent
pay,use ofleastqualifiedpersonnel
results-fewer
laborwhenappropriate,
foravailabiltoperform
manager
responsibility
tasks,use ofpart-time
authorized
first-line
to hireand fire,anduse of less
supervisors
ityof laborand equipment,
means(Stevens,1984a,1984b).
labor-intensive
production
citieshad43% lowerstreet
Contract
cleaningcoststhandidin-houseservicesafteraccount(Stevens,1984b).
ingforqualityandotherfactors
withequivalent
outofasphaltoverlaywashalfas costlyas in-houseproduction,
Contracting
staffandmoreequipment.
Costsavingsin traffic
usedmoreexperienced
quality.Contractors
averaged36% overin-houseservices(Stevens,1984b).
lightmaintenance
constructed
Costsofprivately
sportsarenasaveraged31% less thanthoseofpubliclyconarenas(Savas, 1987,citedin Hilke,1992).
structed
Recreation
ofqualityrecreation
allowedmaintenance
servIncontrast
toin-houseservices,
contracting
13
Proposition
ices,eventhoughbudgetswerereducedbyas muchas 50% underCalifornia's
(Fixler& Poole, 1987).
380
PPMR/March1999
Services
Security
Privatesecurity
servicessaved50% ormoreoverin-house
security
guards(Hanke,1985).
SolidWasteColection
overa decadeindicate
Ninestudiesconducted
thatmunicipal
collection
costsareabout35%
thanthoseofcontract
higher
collection,
without
lowering
ofservicequality,
as reported
by90%
ofhouseholdsurvey
respondents
(Savas,1987).
Fivecitiesusingcompetitive
serviceproviders
wereevaluated
(cityandcontractors)
onmulOnecityabandoned
duetoa needtoreplaceequipment.
tiplecriteria.
contracting
Allcitiesand
incostperhousehold
contractors
increases
experienced
between1981and1993;twooffourcities hadsignificantly
lowerincreases,
anda third
waswithin1.9%ofthecontractor's
increase.
foronecity,whereastwooftheotherthreecitieshad
On costperton,datawereunavailable
lowerincreased
costsandonehaddecreased
costs.On households
perday,datawereavailable
foronlytwocities;households
servedbycityforces
increased
inonecityandthose
significantly
increased
inanother.
servedbycontractors
Fulldatawereavailablefortwocities
significantly
ontonsperperson-day;
increases
wereshownforcityforcesinonecityandforconsignificant
intheother.
Thebasesofcompetition
tractors
werenotentirely
equalduetodifferentials
infactorssuchas population
household
lotsize,traffic
density,
size,terrain,
anddistance
congestion,
todisposalsite.Wisniewski
theoriginal
Savas(1981) studyforthesefactors
(1992) criticized
(Ammons& Hill,1995;Di Piazza, 1986).
BecauseofTeamsters
unionresistance,
a lackofcompetition
amongsuppliers,
andperhaps
theroleoforganized
whenNewYorkCityswitched
crime,thecostsavingsexpected
tothepriofcommercial
refusehavenotmaterialized
vatization
(Bailey,1987).
The Minneapolis-St.
withprivatization
ofsolidwastecollecPaul,Minnesota,
experience
tionwascompared
tothatofNorth
Thebenefits
didnotmaterifrom
York,Ontario.
competition
alizeinNorthYorkovera 5-yearperiod,withcityforcesproviding
servicesthatwere18%less
thancontractor-provided
services(BureauofMunicipalResearch,1981;McDavid,
expensive
1985).
Residential
wascompared
forall largerCanadiancitiesexceptQuebec.Itwasfoundthatexclusivepubliccollection
was41% moreexpensive
thanprivate
collectionandthatmixedpublic-private
were7.5% moreexpensive
thanprivate
systems
collection
whenproduction
andenvironmental
variableswerecontrolled.
Private
crewswere95% more
productive
perpersonthanpubliccrewsandwere60% moreproductive
perpersonthanpublic
Differences
insalariesdidnotexplainefficiency
crewsinmixedsettings.
differences.
Various
duetoomissions
from
datahadtobe estimated
questionnaire
responses
(McDavid,1985).
"Beforeandafter"
case studiesfortwoCanadiancitieswerepresented
forperformance
between1981and 1983.ForWestVancouver,
BritishColumbia,publiccollection
in 1981was
19% moreexpensive
thanwasprivate
collection
thefollowing
perhousehold
yearandwas9%
moreexpensive
thanunitcollection
costsin1983.Tonsperpersonperdayincreased
by21% between1981and 1982andby29% between1981and1983.ForRichmond,
British
Columbia,
in1982was66% moreexpensive
thanprivate
in1983.Private
collection
publiccollection
crews
were65% moreproductive
perpersonin 1983thanpubliccrewswereinprioryear.Updatedresultsfor1987weresimilarinmagnitude
(McDavid,1985;McDavid& Schick,1987).
A studyfoundnoapparent
between
costsofresidential
majordifferences
publicandprivate
refusecollection
& Johnson,
(Hirsch,1965,citedinBennett
1981).Averagecostperpersonof
NewJersey,
was 70% higherwhenserviceswereprotrashcollectionin Monmouth
County,
videdbygovernment
(Spann,1977).
Ina Connecticut
study,
itwasconcludedthatrefusecollection
costsappearedtovarywiththe
typeofeconomicenvironment
inwhichcollection
wasprovided.
Private
collectionappearedto
be about30% moreexpensivethanmunicipalcollection,
whichin turnappearedto be about
25% moreexpensivethancontract
collection(Kemper& Quigley,1976,citedin Bennett&
Johnson,
1981).
Marketcollectionofgarbagewas foundtocostfrom26% to48% less thancontract
collection(Stevens,1978,citedin Bennett
& Johnson,
1981).
BennettandJohnson
(1981,pp.44-45)attributed
thedisparities
inthepreceding
fourcitationstodifferences
in accounting
ofmunicipalities.
practices
No significant
costdifferences
werefoundforprivate
firms
overin-housecollectionin the
St.Louis,Missouri,area.Privatefirms
lostdensity
economiesbecauseseveralfirms
servedthe
sameareas.Publicsuppliers
hadmonopolystatus(Collins& Downes,1977).
In-houseversusprivatemonopolyfranchise
versusprivatenonfranchise
firmswerecompared.Publicsupplywas 40% to 60% moreexpensivethanprivatesupply.Privatemonopoly
pricewas onlyslightly
(5%) higherthanthepriceofprivatenonfranchise
collectors.Density
economiesoffset
otherwise
costs(Edwards& Stevens,1979,citedinHilke,1992;Savas,
higher
1974,1977a,1977b,1980;Stevens& Savas, 1978).
forquality,
therewerecostsavingsof22% fora competitive
Controlling
contract
versusinhouseservice(Stevens,1984b).
weremorecostlythanproprietary
Municipalsuppliers
in48 Canadiancities(Kitchen,
firms
1976).
Costofcitycollectionwas 15% higher
thanthepriceofprivate
contract
collectors
inmidwestern
cities(Petrovic& Jaffee,
1977,citedin Hilke,1992).
inMontanaappearedtobe moreefficient
Municipalsuppliers
thanprivate
notcontrolfirms,
lingforqualityandcommunity
characteristics
& Wicks,1974).
(Pier,Vernon,
No significant
costdifferences
werefoundbetweenin-house
andprivate
firms
inMinneapoifsuppliers
lis,Minnesota,
competed
control
ofmunicipal
through
tight
costsbythelegislature,
costsas a comparison
usingprivate
(Savas, 1977a).
In-houseandfranchise
ina single-district
contractors
werecompared
jurisdiction
tocontractorsand in-houseservicein a multidistrict
The averagenumberof bids perarea insetting.
creasedwhencitiesaredividedintosmalldistricts.
Competitive
biddingled tolowercostsfor
contractor
service.Citiesthatactivelymonitored
municipalagenciesusingprivatecontractor
costshadloweraveragecosts.No benefits
wereobtained
without
thesepolicies(Savas,1981).
Transit
In a studyof595 transit
agencies,itwas foundthatprivately
ownedandoperatedsystems
weremoreefficient
andgenerated
morerevenue
thanpublicly
ownedandoperated
Prisystems.
vatelymanagedpublicsystems
werenomoreefficient
oreffective.
One qualification
oftheresultsofthestudywas thattheprivate
organizations
weresubsidizedsystems
locatedpredominantlyin theNewYork-New
area(Perry& Babitsky,
Jersey
1986).
Aninternational
ofpubliclyandprivately
comparison
ownedandoperated
companiesindicatesthatprivate
arebetween50% and65% lesscostlythanpublicbuses.Differences
operators
forNewYorkCityweremuchsmaller,
whichwasattributed
toextensive
unionization
andregulation.In somecases,costaccounting
datawereinadequateandhadtobe estimated
(Walters,
1987).
InNewYorkState,a comparison
ofWestchester
County'sprivately
operated
system
(16 bus
companies)withNassauCounty'spublicbusauthority
indicated
thatthelatter
costs28% more
thantheformer
(Savas, 1987).
382
PPMR/March1999
overa 20-yearperiodon comthatwereconducted

A totalof 13 studiesweresummarized
own6 found
thatprivate
forms.
Ofthesestudies,
oftransit
organizational
parative
performance
4 arrived
attheopposite
and3 uncovconclusion,
thanpublicownership,
ershipis moreefficient
tendto be more
Thesestudiesalso foundthatmunicipalgovernments
eredno differences.
ofmunicipal
tolimitations
inmeasurement
Thisis attributed
thanspecialauthorities.
efficient
differences
thantorealefficiency
1983;Barnum& Gleason,
(Anderson,
costsrather
overhead
1986;Pucher,1982).
1984;Perry& Babitsky,
1979;Perry,
werestudied,
ofwhich144provided
transportation
solelywith
A totalof275schooldistricts
contractors
and82 usedbothdistrict-owned
exclusively,
district-owned
buses,49 usedprivate
showedpublic
comparisons
buses.Controlling
forvariousdifferences,
andcontractor-owned
onthecriterion
ofcostpermile.For
tobe 12% morecostlythanprivate
ownership
ownership
was 10%greater
incostper
thedifference
systems,
onlypublicorprivate
districts
thatoperated
overthatforprivately
ones.Thesamecostcomoperated
systems
milefordistrict-only
operated
was 16.5%moreexpensive
forthe
operated
publicly
forthepublicpartofjointsystems
parisons
(McGuire& VanCott,1984).
partofthejointsystems
ofallstandard
typesis cheaperthan
transit
provided
A studyarguedthatthecostofprivately
thataverageoperating
costspervehiclemileintheUnitedStates(adbynoting
publicprovision
increased
by2.25timesthe1950costbetween1950and1980.Mosttransit
justedforinflation)
butatitsendnearly
all hadbeen
atthebeginning
ofthisperiod,
wereprivately
operated
systems
intheUnitedStates,Austraofvariousstudies
Also,theresults
takenoverbypublicauthorities.
showedthatprivate
carrier
costsareabout50%ofpubliccosts.The
lia,andtheUnitedKingdom
firms
thathavetakenoverpublictransit
services(Morlok&
resultsarethesameforprivate
Moseley,1986;Morlok& Veton,1985;bothcitedinHilke,1992).
It
from
the1960-1975periodwerestudied.
during
ofcapitalgrants
governments
Theeffects
decreased
decreased13%,real
7%,frequency
approximately
wasfound
thatrevenue
passengers
increased
wagerateincreased14.7%,andcostperbus-hour
pricedecreased10.7%,operator's
contracts
wereassociwithout
exceptmanagement
subsidy
28%. Alltypesofpublicownership
fares.Contract
companies
management
private
atedwithlowerrealaveragefaresthanregulated
ownedsystems
andtransit
thantheprivate
level,andmunicipally
higher
chargefaresslightly
1983).
authorities
chargethelowestfares(Anderson,
andServices)compared
servicesupplier
public
(ATEManagement
Evaluation
bya contract
in Anchorage,
Alaska.It was found
schoolchildren
costsoftransporting
coststotheirprivate
lowerthanthecostofits
schoolbusservicewassignificantly
costsforcontract
thatAnchorage's
inreliability
orsafety
withnoapparent
difference
(ATEManageowndistrict-provided
service,
mentandServices,1985,citedinPoole& Fixler,1987).
busservicedecreased
costsbyre"dial-a-ride"
servicesubstituted
forscheduled
Contracted
andidletimeandbyusinglesscostlyvehicles.Italsoreducedcostsindirectly
ducingovertime
withtraditional
services
oftheagency(Talley& Anderson,
1986).
competition
byencouraging
costsavingsfrom10%to50% becauseoflarger
contract
operations
provided
Competitive
andlowerwages(Teal,Guiliano,& Morlok,1986,
less overhead,
productivity,
greater
fleets,
citedinHilke,1992).
services
serviceshad30% to60% lowercoststhandidin-house
Contract
expresscommuter
Research,1985,citedinHilke,1992).
(RiceCenterforUrbanMobility
Wastewater Treatment
treatment
facilities
and-operated
Contractor-built
averaged20% to50% lessthanin-housecosts.Comconstruction
facilities
duetoshorter
builtand-operated
lagsandlowerconstruction
costs20% to50% (Hanke,1985).
also reducedoperating
petition
Siegel/LOCAL GOVERNMENT SERVICE CONTRACTING
383
wastewater
Contractor
servicewas20% to50% lesscostlybecausefederally
financed
projects involvehigherconstruction
and designcosts(Davis-BaconAct) (Moore, 1988; Savas,
1987).
Water Supply
werecomparedinvolving
112organizations.
In-houseversusprivate
suppliers
Therewas a
thatswitched
Publicsuppliers
were40% less
detailedcase studyoftwofirms
typeofownership.
hada 25% increaseinoutput
Publicfirms
productive.
goingprivate
peremployee.Privatefirms
goingpublichadan outputperemployeedecreaseof40% (Crain& Zardkoohi,1978,citedin
Hilke,1992).
werefoundafter
forothercostfactors
No costdifferences
controlling
betweenin-houseand
& Teeples,1982,citedin Savas, 1987).
privatewatercompanies(Feigenbaum
A comparison
ofin-houseandprivate
foundpublicmodestobe 20% moreexpensuppliers
forinputprices(Mann& Mikesell,1976,citedin Hilke,1992).
siveafteradjusting
insixstateswerecompared.
of143firms
Costs
In-houseversusprivate
suppliers
consisting
were15% higherforpublicfirms
(Morgan,1977,citedin Hilke,1992).
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California.
sityofSouthern
He recently
participated
improvement.
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management,
areas ofLos Angeles
tourbanunincorporated
servicedelivery
ina studyofmunicipal
He
Commission.
Citizen'sEconomy
andEfficiency
County
fortheLos AngelesCounty
He is authororedivariousU.S.andforeign
hasconsulted
governments.
extensivelyfor
His mostreandnumerous
consulting
reports.
torofsevenbooks,morethan60 articles,
andtheMarshalling
ofIdeas toImprovePerformance:
centbookis Mass Interviewing
PressofAmerica,
1996).He holdsbachelor'sand
TheCrawford
SlipMethod(University
USCanda Ph.D. inpoliticalsciencefrom
master's
degreesinpublicadministrationfrom
theUniversity
ofPittsburgh.

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Where Are We on Local Government Service Contracting?

Author(s): Gilbert B. Siegel

outhas beena keyalternative

has becomea freof reasons(to be discussed),servicecontracting

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

Table 1. PercentageofChangeof 10% or More in NumberofCitiesand

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

IN-HOUSE OR CONTRACT: A MAKE-OR-BUY DECISION

thereis theneedfora cleardescripthisissuefora servicefunction,

(see also Ferris& Graddy,1986;Fisk,Kiesling,& Muller,1978;Meyer& Morgan,

Siegel/LOCAL GOVERNMENT SERVICE CONTRACTING

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

Payrolland Data Processing

overa 20-yearperiodon comthatwereconducted

Siegel/LOCAL GOVERNMENT SERVICE CONTRACTING

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

Siegel/LOCAL GOVERNMENTSERVICE CONTRACTING

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