Municipalities’ Contracting Out Decisions: An Empirical Study on Motives

Abstract

Municipalities have various motives behind their decisions about the modes of their task execution. Empirical studies have not yet provided a fully satisfying explanation for municipalities’ contracting out decisions. Therefore, we interviewed several Dutch principal municipal managers to evaluate the causes and motives for the choices of the current structures for the delivery of their services. This study investigates the relevance of common public choice and transaction cost motives on contracting out and explores the relevance of additional institutional and pragmatic motives. We found that municipalities do not regularly evaluate the service provision of their activities and the potential benefits of outsourcing. In fact, if the activity has an adequate performance level and complaints from municipal employees, local politicians or inhabitants do not occur, a catalyst for a discussion on the contracting out of this activity is, in general, lacking. Principally in the case of structural underperformance municipalities consider a change of service provider, and then the efficiency motive is most relevant. Thereby, institutional motives – such as the stability of service provision – and pragmatic motives are also relevant. Institutional pressures in particular initiate the evaluation of organisational performance, whereas both economic motives as institutional and pragmatic motives are used to compare alternative service providers.

Key Words:

• Contracting out
• municipalities
• motives

Acknowledgements

The authors thank Maarten Allers, Germà Bel, Henk ter Bogt and two unanimous referees for useful comments on a previous version of this article.

Notes

1. In case this indicator came out at 50%, the relative number of left-wing members of the municipal council was decisive for denominating left-wing vs right-wing.

2. In five municipalities the executive delegated this interview to a deputy or another manager, in most cases because of their more long-term affiliation with the municipality.

3. As the number of cases of contracting out to a public organisation is relatively small (n = 20), it is not possible to test this variable independently.

4. However, an additional factor analysis shows that it was not possible to divide this category of institutional motives in a proper way.

5. See Wassenaar et al. (2010) for more explanation.

6. However, we cannot exclude that these outcomes are socially preferable answers on this issue as being sensitive to external pressures might not be legitimate.

7. As one of the interviewees described, for example, with one garbage truck, garbage will not be collected in cases of inspection or repair to the truck or absence through illness.

8. As the legal duty to value all real estate changed in 2007 from once every four years to once a year, this activity has received a more constant level of work and the flexibility motive has become less relevant.

9. However, inter-municipal cooperation is rarely a real alternative because of the conflicting interests of the participating municipalities. Some municipalities explain that they have more influence when outsourcing to a private company as it provides the opportunity to make more clear arrangements with only one external party.