Outsourcing and privatization have a long history at all levels of government, from road-building to human services to security functions, encompassing a vast ecosystem of private-sector firms and nonprofit organizations. Now the cases of Alexis and Snowden have brought renewed scrutiny to the issue of contracting, illustrating once again that the outsourcing of government services is as risky as it is complicated.
Want more management news and commentary? Click here.
Recent decades have seen the expansion of outsourcing at the state and local levels as well as by Washington. Areas once thought to be the sole province of government, such as corrections and tax collection, now see widespread use of contracting to do jobs that once were done by public employees. And with hundreds of billions of taxpayer dollars at stake, it shouldn't be surprising that special-interest politics sometimes drives public policy. As a stark example of a private firm attempting to protect its market share, the largest private-prison provider, Corrections Corp. of America, has pushed for mandatory minimum sentences and has contracts in some states that include guarantees to keep prison beds 100 percent filled.
Contracting can be a valuable tool for governments, offering a number of advantages. Contracting permits governments to hire for specified periods to meet short-term needs without making long-term financial commitments. The private sector may specialize in some areas that would be difficult or expensive for government to replicate, making it more efficient to contract out for those services. And it can be easier to hire contractors than to go through the often time-consuming process of hiring a government employee.
Contract management, however, is much more complicated than managing employees. While managers have tools available to affect the day-to-day performance of public employees, contractors manage their own employees, with limited control exercised by government managers. In the end, performance problems often can be dealt with only by cancelling the contract, a very blunt instrument that is in many cases impossible or impractical to wield. Governments may find themselves with no choice but to keep underperforming and expensive contractors because they have no good alternatives, having shed the in-house expertise that would be necessary to replace the contractual expertise.
And as the Alexis and Snowden cases illustrate, governments are quite vulnerable to adverse actions by contractors. The risks are greater as agencies find it necessary to monitor not only large numbers of their own employees but also a dizzying array of contractors and subcontractors. Further, while this cannot be documented, it is worth asking whether the incentives for private profit by contractors run counter to the public-service motivation that is more often associated with public employees.
There is a long and perfectly legitimate history of contracting out for widely available private services, from custodial work to food services to legal services to printing to trash collection. While there are some who may argue against most contracting in principle, there are positive benefits to be gained by contracting if used appropriately.
There should be limits, however, to contracting. Federal agencies, for example, have not historically been permitted to contract for functions considered "inherently governmental". Spying on U.S. and other citizens (regardless of whether you find it appropriate) and performing national-security functions (including doing background checks) certainly seem "inherently governmental," as does incarcerating prisoners or collecting taxes. The question, then, is not whether we should contract. It is whether we are contracting for functions that should appropriately be carried out by public employees.
Contracting out was a reform that resulted from a concern that government had become a monopoly supplier of some services that could more efficiently be provided by the private sector. But a May 2013 report by the watchdog group In the Public Interest, which studies contracting, suggests that insourcing -- taking previously contracted services back in-house -- has in recent years been as prevalent as outsourcing of services that had been produced by public employees. If this is occurring, it may represent a recognition that the pendulum has swung too far in the direction of contracting. If so, insourcing may be a more appropriate reform to pursue at this moment in time.
