Sciulli, Nick ORCID: 0000-0003-3371-4360 and Wise, Victoria (2004) Public sector market testing for contracting out : some implications for accounting and management. Working Paper. Victoria University, Melbourne, Australia.

Abstract

One objective of government is to provide services at least cost, whilst maintaining or improving service quality. This may be the main goal, but questions are now being asked whether the service ought to be provided directly by the government or by the private sector. The shift of services from the public to the private sector is known by several terms such as market testing, outsourcing or competitive tendering and contracting out (CTC). The objective of this study is to investigate if and how accounting information is used by public sector managers in a major Commonwealth (Australia) Government Department to decide whether a service should be contracted out. The contracting out of Corporate Services with special reference to legal services is used as an exploratory case study to identify the variables associated with management decision-making in the contracting-out process. An avoidable-cost approach was used to determine the level of estimated savings from contracting out and these were verified by external accountants. There were differences of opinion among management staff as to the reason for contracting out legal services. Some believed it was dollar driven; others were of the opinion that quality was the underlying reason, whilst a third theme suggested that ideology and political motivation was the driving force. This suggests the need for better documentation and embedding of process. Nevertheless, the accounting system did drive, in part, the decision to investigate the possibility of contracting out corporate services.

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