Outsourcing in public health: a case study of contract failure and its aftermath

Purpose – Outsourcing has been used in Australia as part of the new public management agenda with the aim of increasing efficiency and decreasing costs. In the public health sector its use has been problematic and the purpose of this paper is to explore the largest Australian health contract at the time; investigating the reasons, the processes and the outcomes. Specifically, it investigates why the contract failed and the lessons to be learned from its subsequent awarding. Design/methodology/approach – The paper uses a case study approach to investigate in depth the outsourcing decision. Findings – Alongside savings in costs, changes to work practices and reduction in union power, it was found that the outsourcing contract produced problems with service quality, sharing of culture, relationships between contract and internal staff, and in managing the contract and staff; and reductions in trust and morale of both internal and contract staff. Inadequate contract specifications and subsequent under pricing was the cause of contract termination, poor quality, and difficulties in contract management. Practical implications – The paper provides important lessons for decision makers when outsourcing in public health. Originality/value – The paper investigates the largest outsourcing contract in public health in Australia in the 1990s. It investigates the failure of the initial contract and its subsequent awarding to another vendor. The case study approach provides an in‐depth analysis of this decision.