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Introduction

Competitive tendering
Competitive tendering and contracting
and contracting public (CTC) has embraced alternative means of
sector services in procuring public sector facilities to the
traditional reliance upon an in-house team
Australia ± a facilities delivery approach. This is believed to provide
management issue greater flexibility in both procuring facilities
and managing them. CTC is a ``process of
P.D. Steane and selecting a preferred supplier from a range of
potential contractors by seeking offers
D.H.T. Walker (tenders) and evaluating these on the basis of
one or more selection criteria'' (Australian
The authors
Industry Commission, 1996, p. xix).
P.D. Steane is Senior Lecturer at the Graduate School of The impact of CTC can be manifested in a
Management, Macquarie University, Australia.
number of ways. The simplest business
D.H.T. Walker is Professor at the Department of Building
opportunity impact we can envisage is the
and Construction Economics, Royal Melbourne Institute of
private sector being given the opportunity to
Technology, Australia.
tender for services and facilities that would
Keywords otherwise have been provided by in-house
Public sector, Management, Purchasing, Australia, resources. In this situation, the in-house team
Competition, Contract is subject to the chill winds of competition.
This option may be used as a mechanism for
Abstract changing the in-house organisational culture
Public sector regimes in Australasia are reforming their from an inward to an outward focus where
operations to enhance effectiveness and efficiency. wider management approaches and
Competition and contracts are presented as mechanisms experiences can be tapped. An alternative to
facilitating such reform in areas such as costs, productivity this occurs when an in-house team is
and quality. This paper argues that short-term contractual privatised through either a management buy-
arrangements such as compulsory tendering do not live up out or the formation of a spin-off organisation
to such reformist expectations. Unresolved questions thus
that may be corporatised and later sold. In
preclude any final judgement about the benefits claimed
this case, competition is expected to force
for contracts and tendering in public management. In
pursuing ``best value'' procurement policies, the public changes in focus and direction for an in-house
sector should consider delivery of services as a facilities team. Another variation on this theme is when
management issue. Furthermore, business practice an in-house team is either downsized or
suggests that success is linked to an ability to be flexible in disbanded after ``the market'' wins the right to
environments noted for change more than constancy. deliver facilities and/or services. The
However, the preference given to competitive tendering successful organisation providing that service
and contracting (CTC) and more specifically to compulsory or facility then absorbs all or part of the in-
competitive tendering (CCT) by state and federal house team as a condition of winning the
governments in Australia limits the growth of networks at
contract. Again the organisational culture and
community levels. The policy arena from which CCT derives
focus of the in-house team may be changed to
is more transitory and limited in scope. The notion of
compulsory tendering through market competition is a more outward and ``commercial'' outlook.
discussed and challenged. The authors conclude that good At the most extreme end of the CTC
procurement of facilities is a result of strategic linkages. continuum lies the option of totally
outsourcing the provision of services and
Electronic access facilities with its consequential disbanding or
The research register for this journal is available at severe downsizing of the in-house team.
http://www.mcbup.com/research_registers/jpif.asp Figure 1 illustrates some of the CTC options
alongside the in-house team option.
The current issue and full text archive of this journal is
CTC has, however, brought with it an
available at
element of compulsion that reduces flexibility
http://www.emerald-library.com
through the introduction of compulsory
Facilities
Volume 18 . Number 5/6 . 2000 . pp. 245±255 Received: January 2000
# MCB University Press . ISSN 0263-2772 Accepted: March 2000
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Figure 1 Flexibility issue for CTC continuum options and in-house option where local council operations are estimated
to be a $36 billion a year industry in Australia
(Australian Industry Commission, 1996, p.
577). CCT is intended to create short-term
cost savings and instil a longer-term
enterprise culture in this arena.
A recent report, commissioned by the
Australian Government on the management
and delivery of services using competitive
tendering and contracting (CTC), has found
there to be a generally positive impact upon:
``quality and accountability; the extent,
source, and sustainability of cost savings;
equity and distributional impacts of CTC;
and the sustainability of particular activities
for contracting'' (Australian Industry
Commission, 1996, p. 2). The Industry
Commission (1996) also argued that a
competitive tendering (CCT) which is as rigid
procurement system implemented with sound
an approach as that of insisting upon
management practices in place would be
compulsory use of in-house teams. The CCT
successful for stakeholders. Sound
approach requires agencies to introduce
competitive tendering to specified services or management practice in tendering demands
at a specific level of expenditure (Australian that those responsible for implementing
Industry Commission, 1996, p. xix). With procurement should ensure that the
this compulsion comes an institutionalised objectives are clear and that a quality service
requirement to tender for all or a set is sustained.
percentage of activities. This is required A number of studies into the apparent
regardless of the market's readiness to effectiveness of procurement systems have
compete, the transaction costs involved in the concluded that successful procurement
tendering process, the quality of the in-house strategies are highly associated with
team and their capacity to provide value for management practices such as unified
money, or indeed any other consideration. strategic objectives and enhanced service
CCT appears to be a dogmatic stance that is delivery. An analysis of these practices is
underpinned by a belief that ``the market'' is illustrated in a series of comprehensive
best placed to deliver value for money. The research studies into construction time
former liberal government of Victoria in performance (CTP) in the construction
Australia vigorously embraced CCT as industry. The research lauds sound client and
mandatory for local government requiring contract deliverer competencies in
that, by 1997, a minimum of up to 50 per cent communication, team building relationships
of each local government council's total and sound planning for control (Walker,
expenses would be procured through CCT 1994, 1996; Walker and Sidwell, 1996;
(Australian Industry Commission, 1996, Walker, 1997). The issue, therefore, is not to
p. 435). pursue a procurement system as such, but to
The public sector CTC process begins with ensure that procurement agencies improve
an advertisement to tender for services, the climate for successful tendering and more
projects and works based upon documents importantly that sound quality management
and specifications usually developed within teams operate in both the operational and
the responsible ambit of some level of supervising organisations. With both CTC
government. The tender documents are in and CCT there is a further issue of the
turn considered by contractors or providers. readiness of the market to tender for this work
Services or projects are awarded by the state and to be able to undertake it when successful
entity (principals) to the successful contractor in their tender. Performance quality should
who acts as ``agent''. While all levels of not be based on cost or timeliness criteria
government may contract out services, CCT alone but also service quality and other
is focused on local government operations criteria to be discussed later in this paper.
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Recent government enthusiasm for Victoria's prison system was tendered and its
compulsory competitive tendering has drawn performance also came under scrutiny and
critical responses, manifested in some general criticism (Auditor-General of Victoria, 1999).
public policy analyses wary of the rise of In all three cases the principal criticisms
contestability in Australia and New Zealand. revolved around the way in which the facilities
CCT is premissed more on faith that were procured through a tendering process
competition can deliver better outcomes than that left questions unanswered about the
on any evidence of fact. Claims linking selection process adopted and the subsequent
increased productivity to living standards are performance of the service contracted for.
as yet unsubstantiated (Quiggin, 1996, p. Issues of gaining information relating to these
229). Claims about greater accountability issues were also widely criticised in the press
through CCT are not clear-cut. Often such and on public affairs TV programmes
accountability is linked to cost-savings. Hahn particularly as the Victorian Government
(1984) long ago expressed reservations about maintained that such information was
meaningless log-linear equations of ``commercial-in-confidence'' and so a public
economists with little practical relevance to perception gained ground that this
understanding the benefits to society. This is outsourcing process was a reward for political
pertinent because, in essence, accountability support. This may well be unfounded and
means being able to answer questions of gain unfair, or only a grain of truth may be found
or benefit as well as relevance. to be supported by evidence. The climate of
Furthermore, the research of Alford and commercial secrecy supplanting one of
O'Neill (1994) and Boston (1995) questions openness and access probably harmed the
the changes such contestability has on the role reputation of the Victorian Government of
of government. Parliaments are simply less the time and hindered the perception of
able to hold the executive to account when so outsourcing as a sound direction for
much is outsourced. The role of the state is managing the state's facilities. The then
brought under scrutiny: when contractors premier was widely criticised for attempting
have entreÂe to policy formulation and when to outsource the functions of the Auditor-
contracts give rise to a type of ``virtual'' General's office and subject that to
governance by the nation-state. New Zealand competitive tender. The electorate expressed
is a case in point. During the 1992-1993 a judgement and the government fell. The
period, some 32 government departments appropriateness of contractors possessing
contracted out about $386m for policy entreÂe to information as well as influencing
advice, contributing to 20 per cent of total the direction of policy, which may in fact
government costs on policy (Boston, 1995, advantage them, raises questions about what
p. 91). limits exist before forums particular to
The surprise defeat of the Kennet democratic processes are compromised.
Government in Victoria in late 1999 was The authors of this article are critical of the
widely attributed to public reaction against unrestrained interest in competitive based
the performance of an economic-rationalist contracts in public management. Such
approach to the provision and management of interest appears to be led more by the
public facilities. One illustration (of many of ideology of competition as the elixir for
State Government facilities that were improved public choice and efficiencies of
outsourced) that has attracted criticism from service, than by the longer-term benefits
the Victorian Auditor-General related to the arising from the good management of
performance of the Bureau of Emergency relationships during the procurement process.
Services Telecommunications (BEST) In this case, the tail wags the dog!
project (Auditor-General of Victoria, 1997). The article is presented as a discussion
Another example attracting widespread paper that challenges the assumption that the
criticism was the Public Transport ``commercial market'' delivers better facilities
Corporation's fare collection system being through use of private enterprise than public
developed by OneLink which was delivered resources to develop and indeed manage
33 months late with substantial scope creep facilities. It is structured as follows. A critical
and associated cost overruns (Auditor- commentary on CCT and CTC is provided to
General of Victoria, 1998). Additionally, the situate contracts in new public management.
manner in which the privatisation of Important management aspects of
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procurement are brought into focus, such as: programmes sympathetic to both market
public choice and principal-agency theories. forces and regulation, the introduction of a
The article proceeds with an analysis of the legislative framework suggests a preference for
cost, productivity and quality of service issues the former.
pertinent to CCT. Risk management is CTC has grown as a more significant
discussed as it relates to public management feature of the procurement process for
initiatives in contestability. Social capital is government due largely to cost transaction
raised as an inter-organisational resource benefits. The reported value of CTC
under threat by tendering. It is concluded that procured work for the Australian Federal
CTC and CCT are not panaceas for Government for 1994-5 was estimated by the
efficiencies and effectiveness in the AIC to be in the region of $8 billion[1]
procurement process. (excluding construction services) (Australian
Industry Commission, 1996, p. 59).
Expenditures through CTC at the state
Competitive tendering and contracting government level are not easy to ascertain due
(CTC) to different reporting methods. While the AIC
provide indicative measures, they only report
Competition is seen as fostering greater that for Western Australia (WA) CTC
choice for clients when deciding about accounted for 7.6 per cent of current
suppliers and ways of obtaining services. expenditure in 1994-95 and in New South
Consequently, CTC is increasingly seen as Wales (NSW) it was 4 per cent (the same as
the most efficient and effective way of meeting WA in 1992-1993). At a local government
identified requirements of government to level, the Victoria State Government requires
provide outcomes for clients and the local councils to have CTC levels of at least
community as a whole (Australian Industry 20 per cent of total expenditure (Australian
Commission, 1996, p. 52). The Commission Industry Commission, 1996, pp. 61-3). Local
lauds the heightened level of discipline and government expenditure on services amounts
rational decision making which such to $3 billion a year and thus provides an
contestability brings to the management of attractive target for tenderers.
services in the community. Public choice Contracts can be a tool to achieve political
about such services reinforces a genre of and economic objectives; this invites concerns
policies that reinforce the benefits of such about the shift in objectives and obligations
efficiencies. Public choice theories concern from traditional to some new notion of public
the application of economic logic to issues service. For example, in subjecting to base
previously within the domain of political cost-efficiencies those areas traditionally
scientists and public policy theorists. While associated with public service such as some
policy theorists may emphasise pragmatic welfare and health services, the state is
solutions based upon a posteriori knowledge, assuming a ``virtual'' role in governance:
proponents of public choice value the a priori present, yet not present!
reason for economic choices. Potential contractors spring from a number
The ideology supporting this preference for of sources. A significant and increasing force
public choice derives from a nexus of forces is non-profit organisations such as church
where market forces have been elevated as the groups like the Salvation Army and charitable
prime mechanism to improve inefficiencies organisations like the Cancer Foundation.
and quality of service. Australian research This sector is referred to in the USA as the
(Domberger and Li, 1995; King and ``Third Sector'' where it contributes more
Maddock, 1996) advances competitive than 6 per cent to that economy and is
contracts as a transparent mechanism that responsible for 9 per cent of the total national
enables people to choose between services. employment (Rifkin, 1995, pp. 240-41). In
The National Competition Reform Act 1995 Australia, the non-profit sector comprises
and the Council of Australian Governments some 11,000 organisations with a combined
(COAG) (established in 1992) have annual expenditure of nearly $5 billion
institutionalised the so-called new (Australian Industry Commission, 1995, p.
institutional economics as a corner stone of xxi). The Australian Industry Commission
micro-economic reform throughout all levels (1996, p. 77) reports that non-profit bidders
of government. While there has been a mix of won 17 per cent of CTC bids for
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Commonwealth Government contracts in There are benefits from the introduction of


1994-1995. While there is greater evidence of CCT and CTC in arenas of service provision
increased tendering by in-house teams traditionally involving organisations across
competing for work formerly undertaken sectors. The primarily positive impact has
directly by non-profit groups (Domberger been cost-efficiencies and performance
and Hall, 1995), the Australian Industry improvements. But the advent of adversarial
Commission reported in 1996 that just under tendering has resulted in the separation and
40 per cent (by value) of central government alienation of stakeholders that used to
bids for contracted services were subject to an collaborate to achieve the best overall service
in-house bid. It was also reported that about result for clients. If power is understood as
one half of in-house bids were successful in being able to understand, influence and make
NSW as opposed to one tenth at the decisions, such adversarial arrangements have
Commonwealth Government level. In formalised the tendering process as a political
comparison 73 per cent of in-house bids for process where community groups are either
central services in the UK were successful not powerful enough or not experienced
(Australian Industry Commission, 1996, enough to compete with other private sector
p. 77). tenderers.
Contracting across sectors presents a This overview of CCT and CTC outlines
particular problem deserving of greater the link between contracts and procurement
research. Often inherent differences between processes. It provides the basis for analysing
organisations from either non-profit or public the benefits claimed on the grounds of costs,
sectors are not accounted for. The intention productivity and quality of service.
of the Industry Commission (1995) study and
recommendations was to lay down clearer 1. Benefits and costs
expectations and established practices that One of the more widely understood benefits
were more efficient (Lyons, 1997). The view of CTC has been cost reduction. The
of contract at that time was very different Australian Industry Commission report
from the minimalist approach that has since provides the reported cost changes gleaned
developed. The aim was to use contracts as a from analysis of both Australian and
way to build collaborative relationships, but it international research studies. The Australian
has become a mechanism to drive efficiencies studies include five before and after
and outcomes that can be measured. Non- surveys[2], six cross-section surveys[3] and
profits find themselves in situations where six sets of case studies[4]. The international
contracts have become the language and studies sourced from the UK, USA, Canada
means to deliver philanthropic service; within and New Zealand include four before and
an adversarial arena one finds more in the free after surveys, 13 cross-section surveys, and
market. seven sets of case studies. In all, 303
Lack of attentiveness to the differences individual services were analysed for cost
across sectors reinforces the effect of new saving and the results tabulated. Table I
institutional economics and contestability on illustrates the results. It should be noted that
redefining the role of government in service 112 (over 60 per cent of services) yield
delivery. Monetarist theories of economics and
Table I Estimates of cost changes from contracting
its manifestation in supporting choice largely
argue for the dismantling of regulatory Estimates in Percentage of
structures that manage and administer rules Ranges of cost change estimates each range total estimates
about economic activity ± a more Keynesian Greater than 10 per cent increase 2 1.0
approach. New institutional economics 10 per cent to no change 20 9.9
assumes that the same principal-agency No change to 10 per cent reduction 35 17.2
relationship exists in charitable as well as 10 per cent to 20 per cent reduction 54 26.6
public and private tendering relationships. 20 per cent to 30 per cent reduction 48 23.6
Charitable groups are expected to compete in 30 per cent to 40 per cent reduction 16 7.9
the same arena as private sector agencies for a 40 per cent to 50 per cent reduction 20 9.9
service contract, when the primary mission of Greater than 50 per cent reduction 8 3.9
both parties can differ: philanthropy, on the Total 203 100.0
one hand, and profit, on the other (cf. Brady, Source: Australian Industry Commission (1996, p. 533)
1996).
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between 10 per cent and 30 per cent savings through lower costs of services, and with
and that 20 services (almost 10 per cent) yield greater disposable income flowing into the
no change to 10 per cent increased costs. economy one would expect displaced labour
In a recent paper reporting privatisation of to be soaked up as result of increased demand
correctional facilities in Australia, significant (in the long term). Research that concentrates
operational savings were demonstrated on the nature of cost transfers (Quiggin,
compared to the private sector. The average 1996, p. 229) questions this view, claiming
capital and operation cost per inmate cost for that any cost benefits remain as yet
seven public sector facilities was $247,858 unsubstantiated. In fact, there is research by
and $156 compared to $107,333 and $130 Jensen and Meckling (1976) suggesting
for private sector facilities procured under a structured arrangements similar to those
build-own-operate arrangement (Love et al., evident in CCT actually increased costs. The
2000). They also note that the major potential issue of costs remains ongoing: where
for savings by private prison contractors can contracts emanate from, whose concerns are
be found in labour costs by reducing staff being addressed, and what benefits are
levels in the private prison relative to the actually derived from their use? This
public ones. It is unclear, however, whether introduces another key issue regarding
lower labour costs and capital costs are a contracts: principal-agency theory.
function of more effective design and Contracts are a mechanism that
construction to achieve efficiencies. Thus, characterises a relationship between the
while CTC in general appears to deliver cost principal and the agent in the delivery of
saving, results vary according to the service services. The principal is the entity that
type and other characteristics surrounding the contracts out the work done to the agency,
tendering of these services. which is the entity that assumes the
This issue of whether these savings are responsibility for delivery of the service. The
long-term remains unresolved. The context for this relationship is complex,
Australian Industry Commission report particularly in public management where
provides some insight. In one case study cited departments can have similar and sometimes
in Minneapolis from 1971 to 1975, waste competing interests. The economic rationale
collection was divided between private and supporting the principal-agency construct is
the municipality's internal providers. The that the entity that is subjected to the most
costs of private contractors were initially 13 risk should have the power to act freely and be
per cent lower than the municipality, but over rewarded appropriately for success. However,
four years the situation reversed (Savas, the minimalist bottom-line approach
1977). The report also cites another waste associated with focusing on costs leaves
disposal study from the UK from 1984 to unresolved important issues in Westminster
1988, which indicated that initial savings systems of public service. First, it removes the
increased during the first three years but then covenant (protective) dimension of state
declined (Szmanski and Wilkins, 1993). The emanating from Hobbesian political theory.
Australian Industry Commission conclusion Such a view of the state provides a major
suggests that savings are transitory: frame for the Westminster system of
. . . that cost savings are obtained over the long government and the role of governance as a
term, although they may be higher in the short ``social contract''. This is in contrast to the
term. Two main reasons have been given for any Congressional system of government and the
reduction in savings over time. First, contractors different foundations emanating from the
may initially submit tenders at unsuitably low
individualistic philosophy of John Locke.
prices, either through incomplete knowledge of
the full costs of providing the service, or through Second, it disregards the human factors
loss-leading pricing strategies. Second, the cost likely to flaw efforts to protect the public over
of internal provision may fall over time, possibly private interests in the tendering process and
as a consequence of the (actual or threatened) third, it diminishes parliament's hold of
competition provided by contractors (Australian accountability over the executive when so
Industry Commission, 1996, p. 539).
much service delivery is subject to contract.
While potential better use of capital and The Executive (principal) merely manages
innovation as well as flexibility can be the outsourcing of work to agencies. This
conceded, the question of who wins and who creates an extra layer between the parliament
loses remains. In theory the community wins and service provider. Moreover, the
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introduction of some ``fixed price'' tenders for workers previously employed by the GCS,
family services cannot be truly competitive. productivity increased dramatically. For
They are, in effect, more service agreements example, re-training introduced them to team
than contracts, which avoid the accountability based work groups with greater task variation.
mechanisms expected of the principal party There was more effective use of equipment
who oversees service provision by the agencies and many restrictive work-practices were
contracted. Providers within the charitable abandoned (Jensen and Lienbenberg, 1995).
sector are not in a position to negotiate on Generally, the efficiency improvements were
equal terms and are disadvantaged with the reported by the Australian Industry
locus-of-control shifting more into the domain Commission (1996, p. 140) as being where the
of the funding authorities. Tendering is an contracted service provider (whether an in-
inherently political process. Non-profits are house team or external):
unused to the manoeuvres of public sector . has greater management and labour
agencies and are driven by values of a productivity;
different nature (Steane, 1997). Tendering . has access to skills which the contracting
can be not only alien but also a subtle agency does not have;
incorporation into fulfilling priorities . can provide economies of scale or use
determined by the state to the detriment of capital more effectively;
the non-profit's raison d'eÃtre (Brady, 1996). . exhibits innovation; and/or
. improves the flexibility of service delivery.
2. Productivity
The second advantage perceived by the The case is claimed to manifest a structured
Australian Industry Commission to flow from way of avoiding monopolistic activity. The
CTC is increased productivity. Productivity work was packaged in such a way as to avoid
can be understood within the context of closing opportunities for new providers and
Australian micro-economic reform as in-house teams to compete with established
increased output per employee, which can be providers (Jensen and Lienbenberg, 1995).
achieved in a number of ways. The more usual Efficiency is the holy grail of
way to achieve this is to gain better output microeconomic reform (Quiggin, 1996, p.
through improving the effectiveness of labour's 201) and great effort is given to measuring
use of equipment and capital, or by improving one or other variables that results in more
equipment productivity or less, frequently, the output for a given cost. However, contract
efficiency of capital[5]. In the correctional labour, as in the case above, does not provide
services study cited earlier, the build-own- conclusive answers because labour costs for
operate (BOT) facility delivery method is the contractor are not taken into account
expected to provide a more productive when calculating output per worker. Not do
outcome because the entity involved in output-focused productivity measures
developing the facility is also contracted to consider the use of capital goods used by
operate the facility for a concession fee ($/ labour. To return to the cleaning case in
inmate as part of the arrangement). Thus there point, while private cleaning contracts may
is a direct incentive to take a long-term view provide a greater measure of output, unless all
with BOT type approaches as the long-term the details are known about staffing, hours
operational and maintenance cost is factored and resources used between the input and
into design decisions (Smith, 1999). output points, conclusions about productivity
Competition is also argued to raise contain a wide margin of error. This provides
management performance and workplace but one evaluation of how productivity
practices, which in turn produces greater assessments are a necessary but not sufficient
accountability and improved focus on quality condition to conclude about overall
service delivery. Restrictive labour practices productivity gains through CCT or CTC.
are challenged by CTC because it drives
ongoing re-evaluation of work practices. 3. Quality of service
In one case study of the New South Wales The rise of CTC and CCT has not dispelled
Government Cleaning Service (GCS) the concerns about quality of service. The
workplace practice restricted cleaners to only a Australian Industry Commission (1996,
set amount of work activities per shift. When p. 454) maintain that overseas experience
this service was outsourced, using many of the suggests that in refuse collection, for example,
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there is little evidence of impact upon quality performance measures are monitored against
of service as a result of outsourcing. In fact, numerous criteria for a more comprehensive
what evidence does exist suggests that the view of satisfying customer needs. In a recent
factors influencing quality are due mainly to article on facilities management performance
the management of the CTC process. This is Amaratunga et al. (2000) argue that the
particularly in the appropriate specification of balanced scorecard should be seriously
performance indicators for monitoring quality considered when procuring facilities services
standards and the mechanism used to and evaluating facilities management
measure these (Australian Industry performance. Clearly quality of service is an
Commission, 1996, p. 113). important part of the value for money
Ryan and Brown's (1995) analysis of equation.
service delivery concludes that the central
problem associated with evaluating the use of
contracts is in defining what outcomes are
Discussion and conclusion
agreed as being representative of CCT or
CTC, as well as in measuring outcomes. The debate about whether contracts and
There are issues that persist in remaining tendering are more efficient or better for
unresolved with contestability such as: the business is similar to debates in the
alienation of stakeholders from the tendering construction management literature, where
process and the tendency for service providers discussion concerns contract arrangements
to make themselves look good. Both of these and the superiority of more innovative and
issues cloud discussions on the benefits to flexible forms of procurement systems
services on the basis of quality. The
(Walker, 1996, 1997, 1998). The real issue is
separation of ownership and management
about process improvement and productivity
functions can actually create costs. Jensen and
wherever that may arise. The procurement
Meckling (1976), while sympathetic to new
form of CTC is of second order as an issue.
institutional economics, argue that principals
The first order issue is how productivity and
can incorporate other costs when
effectiveness may be continually improved to
outsourcing, such as monitoring compliance
yield genuine value.
and checking the quality of agents.
It is the flexibility of organisational
Quality of service also raises some
configuration and continual refinement of
interesting issues concerning what those
how a system acts that determines
services are targeted at. There has been
organisational effectiveness. Configuration
increased recent interest in the concept of the
refers to the ways of interfacing the process to
triple bottom line for sustainable
development. ``Sustainable development enhance effective management (Mintzberg,
involves the simultaneous pursuit of 1989; Limerick et al., 1998). Organisational
economic prosperity, environmental quality, cultures that are focused only on cost
and social equity. Companies aiming for economics as a measure of competitiveness
sustainability need to perform not against a can often be plagued by short-term horizons
single, financial bottom line but against the and the creation of fragmented groups.
triple bottom line'' (Elkinton, 1997, p. 397). Public management initiatives can entail
This author provides a persuasive argument planning around the assessment and
for the triple bottom line approach and draws management of risk. Competition and
upon evidence of its adoption by many of the contracts reflect efforts to reward those who
global enterprises such as Shell Oil and the possess and manage the risk of providing
Body Shop. This broader view of customers services (King and Maddock, 1996).
as one of numerous stakeholders who deserve According to the Australian Industry
high quality service levels to satisfy their Commission (1996, p. 424) procurement
various needs has been argued by a number of guidelines entailed the pursuit of value for
academics and writers. Walker (2000), for money in an environment of competition with
example, argues for stakeholder needs to be maximised opportunities for industry development
more broadly considered in considering ISO (our italics). While there appears no problem
14000 quality system implementation. with this, the specifications regarding how
Kaplan and Norton (1992) offered the and what dimensions of service are subject to
balanced scorecard concept where a range of competition are quite prescriptive.
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Problems can arise with dogmatic edicts decisions to save costs to the detriment of
requiring CCT for all services because they broader challenges appropriate for
may force government agencies to expose governments to concern themselves with:
themselves to unnecessary risk in complying social cohesion, social justice, the building of
with policy. In the state of Victoria, for capital in other social dimensions. This is
example, the Local Government particularly so in cases where agencies had
(Competitive Tendering) Act 1994 required built up long-term networks in procuring
that in 1994-95 at least 20 per cent of the services specific to a market or profession
council's total expenses were to be such as health or welfare.
competitively tendered rising to 30 per cent Policy makers may need to consider the
by 1995-96 and 50 per cent 1996-97 risks of long-term on-costs due to fragmented
respectively (Australian Industry stakeholders as well as shorter-term cost
Commission, 1996, p. 435). In the UK, benefit gains. Risk includes a systemic as well
legislation made it compulsory for as a strategic nature. It is systemic when it
competitive tendering of local government includes the interdependent functions
services such as refuse collection, catering for essential to the way organisations interact. It
schools and social services, cleaning, sports is strategic when it recognises the longer-term
and leisure management, and vehicle impact of actions taken, or processes
maintenance (Australian Industry implemented are appreciated. Both Hahn
Commission, 1996, p. 236). This policy was (1984, p. 323) and Fukuyama (1995) argue
pursued in the interests of exposing in-house that collaborations between stakeholders
services to the chill winds of competition within communities reap a more productive
(Walsh, 1991). environment for service delivery. More
Legislative efforts to force market forces recently Yergin and Stanislaw (1998, p. 367)
upon agencies can provide efficiency advance the importance of ``inclusiveness'' in
advantages. These agencies, however, face value adding to generations of human capital
risks they never encountered before. One (our italics). Such work reinforces James
example is a potential problem pertaining to Coleman's (1988) concept of social capital as
outsourcing and the Transfer of Undertakings a key component of advancing the ``human
(Protection of Employment) Regulations capital'' of societies. In this context, attributes
1981 (TUPE) in the UK. This requires that, such as ``trust'' and ``networking'' figure
when a service is transferred to another entity significantly as a contribution to a
as a result of outsourcing, it may be obliged to phenomenon such as social capital and all
continue terms and conditions of that it invests in an economy (Tsai and
employment for retained employees (Jeffers, Ghoshal, 1998). When organisations use their
1996). A similar situation arises in Australia relationships as a means or source for taking
as a result of Section 149 1D of the action, it is a resource. This is the
Workplace Relations Act. In 1999 the Federal understanding Coleman has of social capital,
Court made a decision that affects businesses which Nahapiet and Ghoshal (1998, pp. 243,
taking over outsourced parts of existing 260, 262) develop further to argue that such
businesses. The result of this is that ``small interrelationships comprise a resource for
business may find itself lumbered with organisational advantage. This is an a
liabilities it did not plan for, such as an posteriori view of appreciating social capital
obligation to give employees the same wages and arises from the practice of networking.
and conditions built up by big organisations Risk can reside with the nation-state when
over years'' (Professor Ron McCallum quoted policies of contestability are pursued to the
in Lobez (1999, p.11)). Thus companies that detriment of social capital at community
take on or are transferred services, including levels. Rhetoric of unrestrained adoption of
management buy-outs, may be hampered by market forces for community services and
cost structure liabilities that they may be programmes is one extreme. The
unaware of and would be forced to countervailing rhetoric about total regulation
incorporate in re-tendering for those services. and support for services represents the
Such changes expose the nation-state and opposite extreme. Tony Blair's use of the
companies managing these services and ``third way'' or ``radical middle'' (Yergin and
facilities to new risks. Primarily, governments Stanislaw, 1998, p. 367), sometimes referred
can be shown to make expedient short-term to as ``best value'' (Barnett, 1998), introduces
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P.D. Steane and D.H.T. Walker Volume 18 . Number 5/6 . 2000 . 245±255

a new management discourse to the 4 By performing a detailed examination of particular


environment of CCT or CTC. The UK's instances of contracting, a range of issues
1998 National Health Service White Paper concerning the operation and effects of CTC, which
may otherwise be overlooked, can be analysed.
uses language where organisational
5 Industry Commission research suggests a causal
configurations consist more of collaborative link between productivity and increased living
networks. This is the longer-term gain sought standards: where a 0.5 per cent increase in
in preference to short-term cost-savings. The productivity per year results in a general increase in
introduction of such language into policy living standards for the next generation of 13 per
arenas changes the tone about how cent. Subsequent increases in productivity result in
a compound increase in standards of living. The
government understands itself. While the
research also indicates that the productivity is due
economic imperatives of market forces are to adopting best practice in industry and is helped
important, there are duties and by good public policy that encourages efficiency and
responsibilities to the whole society that are competition with minimal regulation (Scales, 1997).
resurfacing, with which the state acquiesces to
its peril.
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