Contracting for services in a decentralized system

Abstract

Public management is changing rapidly due to the extensive privatization of public services through government contracting with private organizations and the devolution of the funding and administration of government programs to states and localities. These trends are spurred by a belief in the salutary effects of market competition and local decision making on public services. This article presents research on contracting for substance abuse services in North Carolina that indicates that privatization and devolution may not create competitive markets without substantial public intervention. Services in this state are very decentralized with a prominent administrative role for county authorities. Little formal competition exists for contracts. Government purchasing officials - contrary to the competitive market model - rely heavily on trust and long-standing relationships with private service agencies to guide contracting decisions. Public purchasing officials generally lack an adequate number of local agencies due to low funding and localized markets. Program innovation tends to occur through external public and private grants, and the ongoing evaluation of programs and their outcomes is often quite difficult. The article concludes with policy recommendations to improve the effectiveness and competitiveness of contracted services.