The Decision To Contract Out City Services: a Further Explanation

• Published date: 01 June 1988
• Date: 01 June 1988
• DOI: http://doi.org/10.1177/106591298804100209
• Subject Matter: Articles

THE DECISION TO CONTRACT OUT CITY SERVICES:
A FURTHER EXPLANATION
DAVID R. MORGAN and MICHAEL W. HIRLINGER
University of Oklahoma
ROBERT E. ENGLAND
Oklahoma State University
N
a recent article Ferris (1986) offers a comprehensive, theoretically
specified analysis of influences affecting the decision to contract out
services in cities with populations equal to or greater than 25,000.
In brief, he contends that since municipalities may not eagerly embrace
contracting, preferring instead to maintain direct control over most serv-
ices, the perceived gains from contracting must substantially exceed the
potential costs. Three conditions are likely to affect the benefit-cost cal-
culation : when (1) cost savings are likely; (2) fiscal pressures are notice-
able ; and (3) political opposition is weak. To test his model Ferris
identifies, justifies, and operationalizes 14 indicators of his three con-
structs : &dquo;supply,&dquo; &dquo;fiscal,&dquo; and &dquo;political.&dquo; The impact of the predictor
variables on his dependent variable (the percentage of 43 publicly
provided services that are produced externally) is estimated through miil-
tiple regression analysis. Ferris (1986: 306) concludes that &dquo;all three sets
of factors [costs/supply, fiscal stress, and political considerations] are in-
strumental in explaining the incidence of contracting out.&dquo;
Although Ferris’s research must be considered one of the most ambi-
tious attempts to date to explain the decision to contract out, his model
can be extended and refined. For example, he does not examine any
potential variation across major service providers, e.g., for-profit, non-
profit, and intergovernmental. Nor does he separate his contracting meas-
ure by functional area, e.g., public works, public safety, or parks and
recreation. Previous research suggests that the propensity to contract
varies across service vendors and by service area (see Ferris and Grady
1986; Valente and Manchester 1984). A third limitation of Ferris’s con-
tracting model is the decision to include as components of the depen-
dent variable only those services &dquo;delivered to the public [directly]&dquo; (see
p. 308, note 13). He excludes &dquo;support&dquo; services. As Gordon (1986:
226-27, emphasis in original) notes, traditional distinctions between line
(direct) and staff (support) functions &dquo;are increasingly coming to be seen
as less distinct.&dquo; Moreover, from a theoretical perspective staff-support
services can significantly affect service efficiencies, a principal item of
concern in Ferris’s model.
Received: April 15, 1987
First Revision Received: July 31, 1987
Accepted for Publication: August 12, 1987
NOTE: An earlier version of this paper was presented at the Annual Meeting of the South-
western Political Science Association, Dallas, Texas, March 18-21, 1987.

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In sum, we think there is ample justification for extending Ferris’s
contracting model. Since we are impressed with the approach and meas-
ures used by Ferris, we follow his lead quite closely. We
employ the same
14 predictor variables; contracting data are taken from the same 1982
study of alternative service delivery conducted by the International City
Management Association’ (see Valente and Manchester 1984); cities with
25,000 and over population constitute the sample; and regression analy-
sis is used to estimate effects. Our analysis differs significantly from that
offered by Ferris in that we disaggregate his dependent variable and ana-
lyze the potential for different variables to affect the contracting deci-
sion by service provider and by service area. Also, in addition to 43 direct
services we include support services as part of the dependent variable.2
Table 1 summarizes variables used in the analysis, data sources, and pro-
vides other descriptive information.
Since Ferris offers a fairly complete description and justification for
the set of independent variables used in his contracting analysis and the
purpose here is to extend his study, we will provide only a brief discus-
sion according to the three basic categories of influences hypothesized
to affect the contracting decision -
supply (cost), fiscal pressures, and
political influences.
FACTORS INFLUENCING THE CONTRACTING DECISION
Supply (Cost) Variables
Foremost in this group is the percentage of unionized municipal em-
ployees (PCTUNION). One would expect those cities with higher propor-
tions of union employees to face greater obstacles to alternative service
delivery. Likewise, if employee groups are...