Using Contract Consolidation to Improve Performance: Effects of Service Delivery Scale on Nonprofit Provider Efficiency in the Combined Federal Campaign

Abstract

When nonprofit organizations deliver services on behalf of the government, the government agency has the opportunity to select the optimal number of providers to maximize performance. Should more providers deliver services across smaller areas to increase local tailoring or should contracts be consolidated so fewer providers deliver services across larger areas to take advantage of economies of scale? This paper examines a series of contract consolidations aimed at improving the performance and reducing the costs of the Combined Federal Campaign (CFC), the Office of Personnel Management’s workplace giving program for federal employees, which is administered by contracts with nonprofit intermediaries. Using a difference-in-differences analysis based on waves of contract consolidations over time, I find that larger service areas typically had lower giving and costs on a per employee basis. The consolidation process itself tended to decrease average giving further but had no additional effect on costs. Combined, these effects yield no change in costs per dollar raised for larger or consolidated service areas; the benefits of contract consolidation were more modest than CFC administrators had hoped.

Keywords:

• contracting
• efficiency
• intersectoral administration
• nonprofit organizations
• program performance

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Acknowledgements

I am indebted to Marcus Glasgow and Curtis Rumbaugh of the Office of Personnel Management for providing data on the CFC performance over time, as well as Kingsley Klosson and John Zietlow for providing additional data regarding online CFC giving. I am grateful for comments by Charles Clotfelter, Kristen Goss, Rachel Kranton, Michael Howell-Moroney, and especially Robert Christensen. I also would like to thank the participants at the Sanford Graduate Research Workshop (Duke University) and the 2015 ARNOVA conference for comments and suggestions. All errors are my own.

Notes

1 See also Ostrom and Ostrom (1977). Later work lends less attention to diverse preferences. Both researchers and administrative decision makers have tended to emphasize production efficiency in general, and economies of scale more specifically (Bovaird, 2014).

2 Empirical research looking for evidence of cost savings from contracting out is mixed (Bel et al., 2010; Boyne 1998; Hirsch, 1995).

3 The term “horizontal fragmentation” is taken from the literature on local government size, which uses it to describe the number of local government units in a geographic area (Goodman, 2019).

4 Online Appendix A lists the 121 consolidation events that occurred between 2005 and 2013 in the entire United States. Events include the consolidation of 2 or more service areas.

5 CFC regulations are found in Title 5, Part 950 of the Code of Federal Regulations.

6 The data include budgeted costs for all years. In addition, the data include actual costs reimbursed for 2011 and 2012 and estimated final costs for 2012 and 2013. The correlation between budgeted and actual costs is 0.997, and the correlation between budgeted and estimated costs is 0.999. Results are robust to including actual costs rather than budgeted costs.

7 Local economic conditions can affect workplace giving in two ways: through the economic situation of a spouse who is not a federal employee and through changing perceived charitable need in the local community. When per-capita income and unemployment in a local area change, it changes the probability that the spouse of a federal worker is unemployed or underemployed.

8 It is necessary to include an indicator for online giving as a control because consolidation and changes to online giving are correlated. Typically, when a zone offering online giving consolidated with a zone that did not offer online giving, the online system was expanded to include the new employees. To avoid misattributing changes due to online giving options to consolidation, the availability of online giving must be included as a control.

9 The third row of Table 2 shows the number of zones that experience non-standard consolidations or other changes to the campaign’s boundaries. Changes to boundaries were typically made by adding counties that were previously not covered by any zone or by transferring counties to other zones. Because the number of counties that are not covered by any zone has decreased, the number of these types of changes waned in recent years.

10 35 of the final service areas experienced a change to campaign boundaries that was not due to a consolidation. The typical (non-consolidation) change was adding counties that were not previously covered by any CFC service area. I exclude these changes from the analysis, as discussed in Online Appendix B.

11 This figure has a large standard error and should not be relied on as a point estimate.

12 It should be noted that these scale effects are not masking consolidation effects in this model. The data structure employed here combines the pre-treatment records for consolidating zones, so the records show the same number of employees before and after consolidation. The results here should be interpreted as the effects of adding new employees outside of a consolidation situation.

13 The coefficients on the interactions for treatment and time are not significant, indicating that there is not a substantial difference in pre-treatment trends.

Additional information

Funding

This research was supported by the Center for Philanthropy and Volantarism at Duke University and the Horowitz Foundation for Social Policy.

Notes on contributors

Danielle Vance-McMullen

Dr. Danielle Vance-McMullen is an Assistant Professor in the School of Public Service at DePaul University. Her research focuses market structure and competition in the nonprofit context. She also examines donor and nonprofit behavior in new charitable giving contexts.