How an intermediary model manages the tension between low contractibility and probity when outsourcing human services

Abstract

Human services, such as social supports and health care, have low contractibility; services are difficult to specify and measure, and difficult to manage when delivered by a third party. Services can and do fail, resulting in the inefficient use of public resources and potential harm to clients. This article develops a conceptual framing using transaction cost economics (TCE) theory to understand why human services are difficult to contract, and management control theory to understand how services might be managed. This identifies a potential tension between how low contractible services are managed when probity requirements are high. This is explored using a qualitative case study of an intermediary model of outsourcing, focusing on one of 31 Primary Health Networks tasked to commission primary health care under contract to the Australian Government. This study explains how design choices, making use of controls available in different organisational contexts across the intermediary model, overcame the tension between low contractibility and probity. This study adds to our understanding of the TCE characteristic of probity. A greater understanding of why this intermediary model works has the potential to help policy makers and service managers improve the way human services are outsourced.