Effects of Outsourcing and Performance-Based Contracting on Innovations

Abstract

A savings of 13% to 28% was recorded as outsourcing and performance-based contracting were introduced in Swedish highway maintenance, in line with 21% gained in Massachusetts and 12% in Virginia. Few negative effects on service, environment, and quality were noted. However, there is concern that a slowdown of research and development (R&D) and innovations may lead to higher costs and a less effective transport system in the long run. France has used a benchmark for the effects on technical development, with an in-house policy similar to Sweden's before the reform. Initial results of an explorative study are that France has continued to produce technical development in the same period while it seems to have stalled in Sweden. This international comparison tends to support that outsourcing has lowered the pace of R&D compared with a situation if the in-house production system prevailed. However, innovation frequency is not a goal itself, so further study is needed to find the optimal mix of measures to develop an effective transport system. Professionals and politicians representing the Swedish taxpayers are reluctant to return to in-house production just to produce perhaps unnecessary technical development. Instead, the policy to develop complementary innovation promotion within the outsourcing model will continue. Measures within or complementary to the model are multicriteria bid evaluation, alternative bids, on-line monitoring, bonus, penalties and profit sharing, competence development, partnering, and weather-regulated performance- based contracting. Such measures are used and evaluated continuously.