Contracting Out Government Services: Privatization at the Millenium

Abstract

Utilization of the private sector in producing services is an important element in the movement toward reforming government. The aim is to contain costs, increase productivity, or improve quality. There are choices as to the type of privatization to be employed. Contracting out that involves retaining ownership and overall control but employs a private sector operator, is the dominant form. Although there is strong evidence of the benefits of privatization, several important factors must be present for optimization. In particular, the bidding process must be competitive and the contract must be carefully structured. As the airline security case illustrates, low bid contracting without careful specification of service quality can lead to poor service. How extensively a city can employ contracting out is being tested by the city of Centennial, Colorado. Although not a panacea for all fiscal and government performance problems, contracting out, if properly managed, can be a strong force for delivery of greater efficiency and effectiveness.

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