Control patterns in contracting-out relationships: it matters what you do, not who you are

TL;DR: In this article, the authors explore the adoption of control mechanisms for public service provision at the municipal level and the variables that can explain their choice, and show that in the presence of contracting-out, market-, hierarchy-, and trust-based controls display different intensities, can coexist, and are explained by different variables.

Abstract: The contracting-out of public services has often been accompanied by a strong academic focus on the emergence of new governance forms, and a general neglect of the processes and practices through which contracted-out services are controlled and monitored. To fill this gap, we draw on contracting-out and inter-organizational control literatures to explore the adoption of control mechanisms for public service provision at the municipal level and the variables that can explain their choice. Our results, based on a survey of Italian municipalities, show that in the presence of contracting-out, market-, hierarchy-, and trust-based controls display different intensities, can coexist, and are explained by different variables. Service characteristics are more effective in explaining market- and hierarchy-based controls than relationship characteristics. Trust-based controls are the most widespread, but cannot be explained by the variables traditionally identified in contracting-out and inter-organizational control studies.

Summary

Introduction

• They find that, consistently with literature expectations, the delivery mode (in-house, delivery by government, by for-profit or nonprofit entities) can actually affect the intensity of the controls put in place as a consequence of the divergence in the provider’s goals.
• Control patterns tend to combine and, while environmental (uncertainty and asset specificity) and task ( output measurability and task programmability) characteristics only partially explain the adoption of certain control configurations, control mechanisms seem to be influenced by party characteristics (partner knowledge, ownership configuration and political visibility).
• Other variables might aid explanation, as Hefetz and Warner (2012) show for contracting-out, and Cristofoli et al. (2011) suggest for control decisions.
• Previous contracting-out literature has identified the nature of the service provider (forprofit, non-profit, public) as a possible explanatory factor of the intensity of controls (Marvel and Marvel 2007, 2008; Van Slyke 2007).

Methods

• In order to carry out the research the authors conducted a survey for all Italian municipalities (510) of at least 20.000 inhabitants.
• These services were chosen in order to ensure diversity in the variables under consideration (Brown and Potoski 2003)2.
• The authors obtained a total of 91 responses3, where 46% referred to solid waste collection and 54% to homecare for elderly.
• To explore the proposed associations, the authors ran three separate linear regressions where against each type of control mechanism (market-based, hierarchy-based, trust-based), they regressed the independent variables previously discussed.
• Old contract length+β8Turnover+β9Political orientationi+β9 Population +β10 Geographical areai +β11 Surplus/deficit +ɛ.

Control patterns

• 3 In order to account for a non-response bias, the authors ran a two-sample t-test, using late respondents as surrogates for nonrespondents (Wallace and Mellor, 1988).
• The difference across responses was not statistically significant.
• - 13 - Considering the descriptive statistics presented in Table 2, control patterns’ mix and minimum and maximum scores relative to the three control types suggest that the trustbased mechanisms are the most present, followed by hierarchy- and market-based ones.
• Looking across services, while trust controls are still predominant (Table 3), hierarchybased controls are more present than market-based ones in the elderly homecare; vice-versa for waste collection.

Service and relationship characteristics

• In order to explore the variables associated with the different types of control (i.e. market-, hierarchy- and trust-based), three separate sets of linear regressions were performed (Tables 5, 6 and 7).
• As expected, the significance of the explanatory variables varies with the type of control adopted.
• Proposition 1 appears to hold for hierarchical and market-based patterns of control, but not for trust-based ones (Table 4).
• Interestingly, service characteristics appear to be significantly associated with the two former types of control, but not with the latter.
• Only political visibility appears to be significantly (at 1%) related to market-based controls.

Insert Table 4

• Explaining control mechanisms in contracting-out - 14 - Looking more closely at the explanatory variables, market-based mechanisms are positively associated with political visibility (also representing the different types of services) and output measurability (both significant at 1%), while negatively related to task uncertainty (at 5% significance).
• With respect to political visibility, the data show that waste collection services, which are the most visible to citizens, foster market-type controls.
• This finding contradicts their expectations and previous studies (Lioukas et al. 1993; Cristofoli et al. 2010).
• Hierarchy-based mechanisms are more clearly explained by the identified variables, with an R2 of 54.37% defined by the significant association with asset specificity (10%) and output measurability (1%), and the negative relationship with the municipality’s financial performance (significant at 5%).
• It is also worth noting that service political visibility does not contribute to an explanation regarding the adoption of hierarchy-based controls.

Insert Tables 5 to 7

• Control mechanisms and explanatory variables: an interpretation.
• On the contrary, once trust and hierarchical bases have been laid, the results suggest that market controls also play a role, and selective choices are made when these mechanisms are deemed useful.
• This leads to a triangulation of different mechanisms (in addition to the more common trust- and hierarchy-based ones) to monitor the service and its provider.
• This attitude - 18 - might bring about a relative weakness in control systems’ design, which, in turn, may also account for the low variance across the different delivery modes (majority of non-profits in elderly homecare, majority of public-sector providers in waste collection).
• This confirms that market-based controls are not necessarily tied to the mode of governance adopted, and therefore control practices can be of a different nature to the organizational forms chosen for public-service provision (Spekle 2001; Caglio and Ditillo 2008a).

Conclusions

• Public-service contracting-out has often been accompanied by a strong academic focus on the emergence of new governance forms, and a major neglect of the processes and practices through which these contracted-out services are controlled and monitored.
• In particular, bringing together variables so far investigated separately in the inter-organizational control and contracting-out literatures, the authors - 19 - explored whether the variables traditionally used in these studies have explanatory potential with reference to control choices of contracted-out services.
• Trust-based controls, in particular, are the most widespread, but cannot be explained by the contractingout and inter-organizational variables traditionally used.
• Finally, different from expectations (Marvel and Marvel 2007, 2008), mode of delivery and goal congruence do not appear to influence significantly the type of control adopted.

Figures

Table 2 –Descriptive statistics

Table 7 – Regression results for trust-based control

Table 1 – Independent variables: literature, measures, expectations

Table 4 –Findings: expected and actual associations

Table 3 - Descriptive statistics by service

Full text

Control Patterns in Contracting-Out Relationships: It Matters What
You Do, Not Who You Are
Ditillo, A., Liguori, M., Sicilia, M., & Steccolini, I. (2015). Control Patterns in Contracting-Out Relationships: It
Matters What You Do, Not Who You Are.
Public Administration
,
93
(1), 212-229.
https://doi.org/10.1111/padm.12126
Published in:
Public Administration
Document Version:
Peer reviewed version
Queen's University Belfast - Research Portal:
Link to publication record in Queen's University Belfast Research Portal
Publisher rights
© 2014 John Wiley & Sons Ltd.
This is the peer reviewed version of the following article: DITILLO, A., LIGUORI, M., SICILIA, M. and STECCOLINI, I. (2015), CONTROL
PATTERNS IN CONTRACTING-OUT RELATIONSHIPS: IT MATTERS WHAT YOU DO, NOT WHO YOU ARE. Public Administration, 93:
212–229., which has been published in final form at doi: 10.1111/padm.12126. This article may be used for non-commercial purposes in
accordance with Wiley Terms and Conditions for Self-Archiving.
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Download date:09. Aug. 2022

- 1 -
Control patterns in contracting-out relationships:
it matters what you do, not who you are
Manuscript for Public Administration, 93, 1, 2015
Angelo Ditillo
Associate professor, Bocconi University, Milan
angelo.ditillo@unibocconi.it
Mariannunziata Liguori (corresponding author)
Lecturer, Queen’s University, Belfast
m.liguori@qub.ac.uk.
Mariafrancesca Sicilia
Assistant Professor, Bergamo University, Bergamo
mariafrancesca.sicilia@unibg.it
Ileana Steccolini
Associate professor, Bocconi University, Milan
ileana.steccolini@sdabocconi.it

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Control patterns in contracting-out relationships:
it matters what you do, not who you are
1
Abstract
The contracting-out of public services has often been accompanied by a strong academic
focus on the emergence of new governance forms, and a general neglect of the processes
and practices through which contracted-out services are controlled and monitored. To fill
this gap, we draw on contracting-out and inter-organizational control literatures to explore
the adoption of control mechanisms for public service provision at the municipal level and
the variables that can explain their choice. Our results, based on a survey of Italian
municipalities, show that in the presence of contracting-out, market-, hierarchy- and trust-
based controls display different intensities, can co-exist and are explained by different
variables. Service characteristics are more effective in explaining market- and hierarchy-
based controls than relationship characteristics. Trust-based controls are the most
widespread, but cannot be explained by the variables traditionally identified in contracting-
out and inter-organizational control studies.
Keywords: contracting-out, municipalities, control, public services.

1
The authors are listed in alphabetical order. They wish to thank Noel Hyndman and the anonymous reviewers for their
insightful suggestions on former drafts of the paper and the editor for his support. The paper is the result of a research
project funded by the ‘Demattè’ Research Division of SDA Bocconi School of Management. The research assistance of
Andrea Orlandi and Silvia Rota are gratefully acknowledged.

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Introduction
Over the last decades, governments have increasingly moved from the direct provision of
services to contracting them out (Brown and Potoski 2003; Van Slyke 2003; Bovaird 2006;
Brown et al. 2006), giving rise to the emergence of new governance forms where public
and private actors and interests interact (Miller et al. 2008; Beriv and Rhodes 2003). This
requires the development of new systems to manage the contracting process, from the
assessment of its feasibility, to its implementation, to its monitoring and evaluation
(Johnston and Romzek 1999; Romzek and Johnston 2002; Brown and Potoski 2003; Van
Slyke 2007).
Much literature has focused on the identification of the most efficient governance forms to
provide the service (the first stage of the contracting process) (Johnston and Romzek 1999;
Brown and Potoski 2003; Bel and Warner 2008; Hefetz and Warner 2012). In the light of
the interest in contracting-out issues shown by many scholars, it is perhaps surprising that
the phases of monitoring and evaluation of contracted-out public services have rarely been
investigated (Miller et al. 2008). This neglect often reflects the limited attention towards the
phase of contract evaluation (Kettl 1993; Brown and Brudney 1998; Sclar 2000), which
sometimes translates into a deficit of monitoring and, in general, contract management
capacity (Brown and Potoski 2003; Van Slyke 2007). Consequently, calls have been made
to better understand such monitoring practices in view of their importance in ensuring the
effectiveness of contracting-out (Johnston and Romzek 1999; Romzek and Johnston 2002;
Cristofoli et al. 2010).
This paper combines contracting-out (Donahue 1989; Hefetz and Warner 2012; Marvel and
Marvel 2007; Van Slyke 2007) and the inter-organizational control (Van der Meer-Kooistra

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and Vosselman 2000; Langfield-Smith and Smith 2003; Caglio and Ditillo 2008a, 2008b)
literatures to explore variables relating to the adoption of control mechanisms for public
service provision at the municipal level. The contribution is twofold. First, by combining
the traditional contracting-out and the inter-organizational control literatures, we explore
whether the variables traditionally used to explain contracting-out choices have explanatory
potential. Second, differently from previous studies, we consider both the intensity and the
types of control (i.e. hierarchical, market-based and trust-based). The analysis is based on a
survey of Italian municipalities, where public services have been increasingly contracted
out, requiring the deployment of a combination of controls over the public-service
providers. The paper is structured as follows: the next section reviews the relevant
literature on monitoring and control systems in public service provision; this is followed by
a discussion of types of control and possible explanatory variables regarding choice of
control method (as a basis for developing two propositions); subsequent sections outline the
research methods, the results and a discussion of the results; and the final section draws
conclusions and suggests further research avenues.
Monitoring and control systems in public-service provision
The contracting-out literature has mainly focused on outsourcing forms and their
determinants (Brown and Potoski 2003; Van Slyke 2003; Bel and Warner 2008; Hefetz and
Warner 2012; Albalate et al., 2013). Contracting-out behaviors have been studied looking
at service-delivery choices and consequences, often adopting a transaction-cost approach
and proposing explanatory variables, such as asset specificity, output measurability, task
uncertainty and task interdependence (Ferris and Graddy 1991; Milward and Provan 2000;

Frequently asked questions

Q1. What are the contributions in "Control patterns in contracting-out relationships: it matters what you do, not who you are" ?

To fill this gap, the authors draw on contracting-out and inter-organizational control literatures to explore the adoption of control mechanisms for public service provision at the municipal level and the variables that can explain their choice. 

Q2. What have the authors stated for future works in "Control patterns in contracting-out relationships: it matters what you do, not who you are" ?

First, the authors assessed the explanatory potential of transaction-cost variables with reference to control choices, rather than to contracting-out choices as most of the literature had done before. The study calls for further research on services with different characteristics. Future studies might devote more attention towards the political and contextual factors affecting publicservice management ( Pollitt 2013 ) 4, which can not simply be grasped through quantitative analysis. The importance of trust-based controls and the difficulty in explaining their adoption with respect to traditional variables ( mainly drawn on economic and control studies ) suggest that additional studies are needed to explore the role of other variables, such as political and informal factors, in defining the type and the intensity of the controls used between the - 20 - public sector and public-service providers. 

Q3. What is the need for the development of managerial competences and skills?

The current pervasiveness of trust-based mechanisms also points to the need for the development of managerial competences and skills, such as communication, negotiation and networking, together with the strengthening of transparency mechanisms in place between the public sector and service providers. 

Q4. What is the main reason for the change in the public sector?

as a consequence of the managerial reforms that took place over the last two decades in the public sector, a greater emphasis has been put on the communication of results and output as a means of providing legitimation for public sector activities. 

Q5. What is the important factor in determining the intensity of controls?

high degrees of alignment between the public sector’s and the provider’s objectives (i.e. goal congruence) should result in less intense controls. 

Q6. How did the model account for a non-response bias?

In order to account for a non-response bias, the authors ran a two-sample t-test, using late respondents as surrogates for nonrespondents (Wallace and Mellor, 1988). 

Q7. What are the main reasons for the lack of monitoring systems?

According to these, monitoring systems are put in place in order to minimize transaction costs and goal misalignment between principal and agent. 

Q8. Why do more politically visible services need tighter controls?

more politically visible services (such as waste collection) might require tighter overall controls because of their greater importance. 

Q9. What methods of research are needed to study informal processes of control?

Consistent with this view, while the authors conducted a survey, studying informal processes of control might require more participative research methods, such as interviews, direct observations and ethnographic studies. 

Q10. What is the main reason for the preference for hierarchical mechanisms?

The preference for hierarchical mechanisms is probably further strengthened by the traditional bureaucratic culture of the country under analysis, where the accomplishment of predefined rules is considered as the achievement of the result itself (Cristofoli et al. 2010). 

Q11. What are the main variables that may be relevant in explaining contracting-out choices?

The characteristics of the relationship (such as mode of delivery/goal congruence, political visibility and partner knowledge) between the parties involved in the public-service provision may be relevant not only in explaining contracting-out choices, but also in defining the types of controls subsequently set in place.