View/Open - Naval Postgraduate School

What Works Best when Contracting for Services? An Empirical
Analysis of Contracting Performance
Presenter: Sergio Fernandez, Indiana University
Abstract
The practice of contracting for services has become widespread in the United States.
Hundreds of billions of dollars are contracted out every year by governments in this country, and
innumerable policies and programs are implemented, at least in part, through contractual
arrangements between public agencies and private service providers. The situation calls for
research to identify factors public managers can manipulate to achieve high levels of
performance in contracting for services. Although researchers have produced a large body of
work on contracting out, the literature is elusive when it comes to identifying factors that account
for success. First, the development of competing theoretical perspectives, each with its own set
of propositions about the determinants of performance, confuses practitioners seeking best
practices. In addition, most of the empirical research on contracting outcomes has focused
narrowly on efficiency or quality of service, while neglecting other important outcomes such as
responsiveness to the government’s requirements, legal compliance, and customer satisfaction.
Finally, nearly all of the studies on contract management and performance have been
descriptive in nature and have focused on a very small number of observations. In short, there
have been no systematic efforts to validate the various prescriptions for contracting out
effectively.
This paper takes on the challenge by developing a comprehensive model of contracting
performance. The model is tested using Substantively Weighted Analytic Technique (SWAT),
a new methodology that allows researchers to isolate high performance among a large
number of observations to identify factors practitioners can manipulate to improve practice.
A representative sample of 460 contractual relationships between local governments and
private service providers is used in the analysis. Contrary to the prevailing norms about
effective contract management, the results indicate that factors such as competition,
contract specificity, and contract monitoring fail to account for high levels of performance.
Instead, it appears that factors that facilitate adaptive decision making, problem solving and
learning—including trust, a willingness to work together to identify and solve problems, and
frequent communication—are the ones public managers should manipulate to improve the
practice of contracting for services.
Author Info & Affiliation: Indiana University
Sergio Fernandez
Indiana University
School of Public and Environmental Affairs
SPEA 449
1315 E. Tenth Street
Bloomington, Indiana 47405-1701
812-856-4873
sefernan@indiana.edu
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