Contracting for Management: Assessing Management Capacity Under Alternative Service Delivery Arrangements

Contracting critics suggest that when governments outsource, they reduce their capacity to produce services and manage service delivery. In this paper, we decompose the service delivery decision into service production and service management components. When governments contract for service production, they may also choose to contract for a portion of service delivery management. Studies that only compare the management activities of contracting and direct service delivery governments, without examining the management activities contracted to vendors are likely to be incomplete and biased. Drawing on a unique survey of governmental refuse collection service directors, matched with a survey of refuse collection vendors operating under municipal contracts, we show that the vendors management activities offset the decline in management capacity that occurs when governments contract for service delivery for this particular service. Governments can "buy" management activities when contracting for service production.