The use of contracting out : a case study of decision-making and organisational learning in local government

One objective of government is to provide services at least cost whilst maintaining or improving service quality. While this may be an important objective, questions are being asked whether services can be provided more efficiently and effectively by the private rather than by the government sector. The shift of service provision from the public to the private sector is known as outsourcing or contracting out. The objective in this study is to critically examine whether the contracting out of services by local government to the private sector is an efficient management practice. The contracting out of Parks and Grounds Maintenance services for the City of Kingston in the State of Victoria, Australia, is used as an exploratory case study to identify the variables associated with management decision-making in the contracting out process. Factors relevant to the contracting out decision such as the criteria used in selecting a contractor; the evaluation of a contractor’s performance; and any subsequent changes to management practice relating to the contracting out of the services are identified and discussed. Political forces were found to be an important consideration in the initial contracting out decision, and the selection of a contractor was influenced by the potential to avoid costs. It was also found that under-bidding and associated cost /profit constraints lead to contractors engaging in non-sustainable environmental practices which resulted in the degradation of the local government’s Parks and Gardens assets. A sustainable asset management philosophy as opposed to an avoidable costs approach now underpins the contracting out process to ensure the preservation of such assets. Further, administrative processes have been revised to make tender specifications more prescriptive, critical components of services have been brought back in-house, and management practices have been amended so that a greater degree of control is exercised over contractors’ activities.