Association for Public Policy Analysis & Management

Competition over the allocation of scarce resources is frequently used as a theoretical underpinning in public administration. Tiebout argued that intergovernmental competition can serve as a solution to the free rider problem, with localities offering competing bundles of services that allow citizens to maximize their individual utility. Public choice theorists also adopted this approach, holding that the only way to move away from inefficient, costly centralized institutions was to embrace a polycentric system in which consumers are allowed to choose the best way to maximize their utility. These theories, in part, resulted in what has commonly been termed “new public management,” which has stressed improving government performance through the adoption of private sector techniques such as pay for performance, reducing property rights, and privatization. Over the past thirty years, governments around the world have adopted various elements of the new public management approach, with mixed results. Due to ongoing political pressures to produce better performance at a lower cost, it is likely that public managers will have to work in an increasingly competitive, complex, and networked environment.

Contracting out has experienced expansive growth in recent years, and the ramifications of this trend are not well understood. However, underlying much of this expansion is the idea that competition will, in the words of the Al Gore, “cost less and work better.” Despite the wide acceptance of competition as a viable method to improve public management, little empirical work has been done to determine whether competition actually improves performance, especially in the networked setting. This paper attempts to fill that gap by assessing the effect of competition on the performance of  contractors in the state of Florida. Specifically, the paper answers the question: does competition lead to fewer contract terminations for cause? Theoretically, more competitive source selection should lead to improved performance (and fewer terminations for cause).

This analysis uses data from the Florida Accountability Contract Tracking System (FACTS). This database allows insight into the competitive processes used to select a contacting source, including the extent an individual action is competed and the number of bids received. This research analyzes 159,948 Florida contracts that ended between January 1, 2000 and December 31, 2014. Using a series of multinomial logistic regression models, this analysis finds that competitive sourcing activities are associated with more terminations for cause, not fewer. Other factors, most notably previous relationships and organization type, are more likely to result in fewer terminations for cause (or improved contractor performance).

This research runs counter to much of the conventional wisdom about the value of competition. The findings indicate that other factors, such as previous collaboration between organizations and the consonance of organizational goals might be better indicators of potential contract success. This supports many of the recent findings in both the collaborative management and contracting literatures in public administration.