No Magic Solution: An examination of the arguments in favour of contracting out government services

Abstract

This paper examines the arguments commonly used to support contracting out service delivery to the private sector and attempts to demonstrate that these arguments overestimate the benefits of contracting out. First, the economic savings attributed to contracting out service delivery are considered and shown to omit important supplementary costs associated with the contracting process. Next empirical evidence is used to test the common argument that private sector service delivery is always superior to that of the public sector. Finally, the assertion that contracting out service delivery will lead to innovative solutions to government’s problems is explored. The paper attempts to demonstrate that internal reforms of government structures should be considered as a strong alternative option to contracting out.