Trust and competition in contracts for public services

"Better the devil you know? The effect of prior relationships on competition for UK government contracts." Presented at the 2021 Conference of the International Research Society of Public Management, 21-23 April 2021

Abstract: The quality of governments’ relationships with their external suppliers has come to the fore as a central factor determining the success of public contracts, especially under conditions of complexity and uncertainty. Recent literature has emphasized the positive effects of closer, longer, and more trusting relationships with suppliers. However, little is known about the potential downsides for governments of investing in closer relationships with their suppliers. This paper examines one such negative consequence: declining competition in the markets for government contracts. The paper develops a central hypothesis that close relationships between government buyers and their suppliers will erode competition over time through three potential mechanisms: buyers factoring their investment in the relationship into their purchasing decisions; buyers reducing the opportunities in the market through fewer, larger contracts; and buyers limiting competition in the way they advertise their contracts. The paper presents an analysis of a novel dataset constructed from administrative data detailing UK procurement announcements published between 2006 and 2019. Findings indicate that overall stronger relationships with previous suppliers do negatively affect market competition. They also support the first and third of the theorized mechanisms.

"How do trust and competition affect one another and performance in government contracts?" Presented at the 2021 Conference of the International Research Society of Public Management, 21-23 April 2021

Abstract: Contracting out public service delivery to private companies, non-profits, or even other governments has become commonplace in many countries. Government organizations at all levels increasingly fulfil their responsibilities to provide public services by acting as buyers in a market and managing ongoing relationships with suppliers. The performance of these services therefore depends on the ability of public managers to create and maintain competitive markets, and to manage effective working relations with their chosen suppliers. These two tasks and the potential tensions between them are the focus of this paper. Both have individually been the subject of much academic debate, but the relationship between the two is hitherto undertheorized and understudied. This paper develops a theory that trust between government buyers and their suppliers encourages both sides to behave in ways that will reduce competition. Likewise, the paper hypothesizes that competitive market conditions will influence contracting parties’ behaviour towards one another in ways that limit the development of trust. The paper presents a design for an online survey experiment with public managers and government contractors to test this theory, including plans for implementation and data analysis. This design would constitute one of the first uses of experimental methods to study contracting out, an approach which is still rare within this sub-field of public management.

Accountability and efficiency in contracted services

"Assessing the effects of user accountability in contracting out." (with Juan Carlos Garrido, José Zafra-Gomez, Marc Esteve, and Christian Schuster) Journal of Public Administration Research and Theory

Abstract: How does contracting out affect service performance? Evidence to date is mixed. We argue that this is partially due to prior studies focusing often on whether—not how—services are contracted. Yet, how services are contracted matters. In particular, we argue that whether users pay user fees for services to contractors affects efficiency. Where they do, contractor revenue depends on user satisfaction and contractors face incentives to provide quality services to users to retain revenue. Where, by contrast, governments fund services, information asymmetry about the quality of services users receive allows contractors to shirk quality. The assertion is substantiated by empirical evidence derived from a comprehensive analysis of conditional efficiency within the water supply services across 2,111 municipalities in Spain, employing a two-stage conditional order-m data panel estimation. Our results show that contracting out where users pay service fees and thus have incentives to hold contractors accountable outperforms contracting out without user fees in quality-adjusted service provision.