For decades, the federal government has relied on states and municipalities as agents to implement federal policy through intergovernmental grants.   The Department of Energy’s (DOE) Energy Efficiency and Conservation Block Grant Program (EECBG) is a case in point. As a part of the American Recovery and Reinvestment Act (ARRA), over $12 billion was directed to local energy efficiency and sustainability efforts though this program, but local governments have struggled to spend sustainability grant monies in a timely and efficient manner.   We investigate how the use of contractors and contracting design and management practices influences this implementation to better understand intergovernmental implementation and begin to integrate the fiscal federalism and contracting literatures into a theory of third party federalism.

The study of intergovernmental policy implementation has applied principal-agent and goal congruence frameworks to identify factors linked to effective implementation. These factors include well-designed oversight and accountability systems, goal congruence, resources and managerial capacity, but this literature has generally neglected the role of private contractors.  The use of contractors introduces an additional layer of actors into the implementation process that has the potential to negatively impact implementation and policy outcomes. This paper examines how local government use of contractors to implement EECBG projects affects delays in project implementation and completion and the achievement of intended program outcomes. We also account for how local government contract design and management practices such as mandated performance metrics and contract clawbacks influence implementation and completion of these federally funded programs.  The analysis is based on a unique dataset of project types and completion rates from the DOE in addition to a national survey of all city, county and tribal government recipients of the EECBG Program.