Three - Solutions in Governance

Summary

Contracts

The state may reduce problems in public service outsourcing by designing governance solutions that impact directly on the public outsourcing relationship with a view to reducing exploitative and extractive behaviour. A starting point in developing these solutions is, once again, the public outsourcing contract, which offers the state direct (private) governance leverage over its private provider. To ensure that outsourcing delivers both primary and secondary objectives (see Chapter One), contracting authorities will want to optimize the effectiveness of the public contract as a governance tool. By ensuring that public contracts are drafted appropriately, the state can minimize the risk of exploitation, formalization and even unwanted dependencies. In practice, however, the decision of how to approach the drafting and management of public outsourcing contracts always involves a balancing of different factors, including complexity and resource intensity, intended and unintended effects, and choice between long-term and short-term perspectives. In particular, the state has a balance to strike between, broadly speaking, a relatively formal and detailed contract design and one that allows for greater flexibility and adjustment.

The state may try to anticipate and avoid conflict and exploitation of incomplete outsourcing contracts by introducing more detailed contractual provisions. It can introduce more detailed metrics and targets against which performance and outputs will be measured and assessed – for example, by strengthening the use of KPIs to measure performance, to make it both more difficult for providers to avoid obligations under the contract and easier for the public authority to hold providers to account during or at the end of the delivery. For large public contracts, the new public procurement legislation reinforces this by requiring contracting authorities, where possible, to set and publish at least three KPIs. It runs a risk, however, that by designing overly complex contracts, the state expends public resources disproportionately without necessarily improving underlying issues related to, for example, power imbalances that can impact negatively on public contracting. The very conditions (for example, risk assurances, accounting requirements, clawback clauses) that are intended to hold providers to account and avoid exploitation can be those that are easier to address and absorb by larger and incumbent providers than smaller organizations and new entrants, thus undermining attempts at diversifying public service provision.