A Framework for considering the Contracting Out of Government Services

Abstract

This article analyzes the contracting out decision. It assumes that the decision to assign responsibility to local government for providing a particular service to the public has already been made, and that a rationale for making that decision has been articulated, usually in the form of a legislative mandate. Therefore, the issue that remains for local government is how best to effectuate this mandate. This article offers a critical evaluation of various approaches to analyzing the contracting out decision and provides a comprehensive framework for undertaking such analyses. Adherence to the framework requires an ambiguous, comprehensive statement of service goals followed by an economic cost-benefit evaluation that takes into account all direct costs, as well as indirect costs and social costs, in order to properly ascertain whether there is any advantage to contracting out as compared to performing the work in-house.