Association for Public Policy Analysis & Management

In the last decades, a variety of public services provided by local governments have been contracted out to private organizations. However, involving the private sector in public service delivery may not go as planned and meet initial contracting goals and expectations. Contracting out public services “hollows” a government and may bring issues with ensuring equity and accountability to citizens, and sustaining quality of services that can be sacrificed for cost savings. Private contractors’ profit motives and their failures to adequately respond to residents’ needs and concerns may enter into conflict with the purpose of local governments to effectively serve their communities. Therefore, governments may opt to terminate contracts with private providers and bring service delivery back in-house. Understanding of both positive and negative contracting outcomes may help governments to enhance their contracting expertise, and improve their service choices and practices.

As a literature review convinces, there is a lack of studies on learning by local governments from the experiences of bringing services back in-house. Based on the gap in the literature, the research questions are formulated as follows: What are the reasons, benefits and disadvantages of bringing previously contracted public services back in-house at the level of local governments? What are the lessons learned by local government officials from the experiences of returning services in-house?

Data for this exploratory study have been collected through semi-structured interviews with local government officials representing 11 municipalities of the New Jersey state with experiences of bringing previously contracted public services back in-house. In this study, local governments’ experiences of returning services in-house have been analyzed along several dimensions: services (what particular services have been brought back); reasons (what were the reasons for returning services in-house, what actions/lack of actions of government officials and private contractors caused such decisions); stakeholders’ involvement (who inside and outside the government initiated and supported bringing services back and under what conditions); benefits and disadvantages of bringing the delivery of public services back in-house; lessons learned from returning services and their in-house delivery. As the findings show, the NJ municipalities included in the study brought back in-house a variety of public works and services ranging from trash collection to general construction to community services. Among the most common reasons for bringing services back in-house were cost inefficiency, low responsiveness and accountability to residents, and inflexibility of contractors in meeting the requests of residents and public officials. Some of the lessons learned by the municipalities include the importance of approaching service delivery issues on a case-by-case basis, analyzing of all potential costs and benefits of contracting out public services and delivering them internally, proper planning and implementation of in-house delivery including the use of pilot projects and engaging in competitive contracting, being ready for possible changes in attitudes and work practices of public employees and for overcoming such challenges, and effectively communicating and negotiating with unions before and after returning services in-house. The theoretical and practical implications are discussed.