Evaluating Contracting-Out Performance in Taiwan: Comparing Perceptions of Public Managers and Private Contractors

Abstract

INTRODUCTION Fiscal pressures and the change of governmental functions and managerial philosophies have promoted many governments in the world to seek new ways of public service delivery. Contracting out is a widely and increasingly utilized mode of service delivery (Hodge, 2000; Savas, 2000). Its benefits and problems, as well as how to make it work, if at all possible, have been studied in the public administration literature (Brown & Potoski, 2003a, 2003b, 2003c, 2006; Ferris & Graddy, 1988; Gooden, 1998; Romzek & Johnston, 2002). Nevertheless, it remains uncertain or controversial whether contracting out can actually succeed in serving the public purposes. In theory, proponents suggest that compared with traditional bureaucratic service delivery, contracting out can increase efficiency, reduce cost, improve quality, and downsize government because it brings in competitive pressures of the market (Benton & Menzel, 1992; Boyne, 1998; DeHoog, 1985; Ferris & Grady, 1991; Kettl, 1993; Nicholson-Crotty, 2004). However, empirical results are mixed, and it seems that contracting out can only work in certain service areas and under certain circumstances when supporting factors are present such as strong political leadership, existence of competition among multiple service providers, resource adequacy, and government's contracting capacity (Hodge, 2000; Romzek & Johnston, 2002; Stein, 1993; Auger, 1999; Salamon, 2002; Brudney et al., 2005). So far, most contracting-out studies have focused on the institutional and organizational factors that affect the performance of contracted services, such as rigid laws, organizational characteristics, and contracting procedures (Becker, 2001; Brudney et al., 2005; Hefetz ? Warner, 2004; Johnston & Romzek, 1999; Siegel, 1999). Relatively less attention has been paid to those actors who are involved in contracting-out activities, such as public managers and contractors. It is reasonable to assume that the performance of contracting is influenced by these actors' attitudes toward contracting out, their interactions during the process, and their respective decisions and actions. While this attitudinal and behavioral aspect has been recognized in recent studies (e.g., studies of relational contracting, Sclar, 2000; Bertelli ? Smith, 2005; Van Slyke, 2006), more knowledge is necessary to draw a fuller picture of contracting out at the micro level. As a first step, this article focuses on a largely unexplored issue: the relative perceptions of public managers and contractors in regards to the performance of contracting out. Do they have similar perceptions? If not, why do they differ? In particular, we test two theories that provide different suggestions on this matter: administrator as conservator and bureaucratic capture. The results will contribute to our understanding of administrative behavior and contracting out. PUBLIC MANAGERS IN CONTRACTING OUT: WHAT KIND OF PRINCIPALS? Public managers in contracting settings can be viewed as principals while contractors can be viewed as agents. The contracting-out process usually includes at least four stages: sending out requests for proposals (RFPs); reviewing proposals; negotiating and structuring contracts; and evaluating the performance after the service is completed (Peat & Costley, 2001). Public managers need to regulate competitive bidding procedures, outline qualifications of contractors, negotiate service specifications, and assure cost-saving and success of the program (International City/County Management Association, 1992). As Greve (2001) argues, the core principles of contracting are the same in public and private sectors: A principal decides on a service that needs to be provided and then submits the task to a competitive bidding process where independent agents are allowed to bid. Agency theory depicts that the managerial task of the principal is to ensure the agent behaves in a way that maximizes the interest and welfare of the principal (Alchian & Demxetz, 1972; Jensen & Meckling, 1976; Moe, 1984; Pratt & Zeckhauser, 1991; Miller & Whitford, 2007; Van Slyke & Hammonds, 2003). …

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