2.1 Privatisation

By the end of the 1970s, the old social democratic order was in crisis and bureaucratic challenge was on the rise. With economic stagflation and widespread strikes by large public sector trade unions, the growing middle classes of the US and UK began to resent high taxation and became disenchanted with large post-war welfare states. Concerns about politicians favouring expansionist public agencies advanced the introduction of public choice theory where government failure was characterised as endless public bloat necessitating continually growing tax levels but poor economic performance (Reference Boston, Christensen and LægreidBoston, 2011; Reference FerlieFerlie, 2017; Reference NiskanenNiskanen, 2017). In the words of the Trilateral Commission, the ‘large public sectors in the Western world were “overloaded” with problems and demands’ and ‘society and the economy were becoming more “ungovernable”’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020 quoting Reference Crozier, Huntington and WatanukiCrozier et al., 1975).

The solution to the problem of government was to shift the production of welfare to the private sector, ‘increasing the reliance on self-regulating markets and communities’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 55). This milieux, combined with small-state political rhetoric, gave birth to a suite of reforms meant to shrink the size of direct government action and introduce the discipline of private markets and management, a public governance paradigm called New Public Management (NPM) (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020). NPM reforms are strongly associated with the political rise of the New Right and were famously pursued by UK Prime Minister Margaret Thatcher, who served from 1979 to 1990, and two-term US President Ronald Reagan, first elected in 1980 (Reference FerlieFerlie, 2017).

NPM functioned on the logic that government bureaucracies routinely failed to achieve economic and organisational efficiency (Reference Hefetz and WarnerHefetz and Warner, 2004). Though loosely coupled, NPM reforms promulgated the notion that government failure could be mitigated by shades of market involvement. Large welfare programmes were scaled down, marginal tax rates were slashed, and ‘privatization and contracting out’ were pursued alongside ‘marketization of services still inside the public sector’ and the strengthening of ‘performance management and managerialization’ (Reference Boston, Christensen and LægreidBoston, 2011; Reference FerlieFerlie, 2017, p. 2). In his paper ‘A Public Management for all Seasons?’ Christopher Hood provided a list of seven doctrinal components of NPM, condensing the core logics of the bureaucratic reforms which have dominated OECD countries since the late 1980s (see Table 1) (Reference AucoinAucoin, 1990; Reference PollittPollitt, 1990; Reference HoodHood, 1991). Ewan Ferlie likewise distilled NPM into three ‘M’s: i) markets and quasi-markets; ii) management within agencies; and iii) measurement of performance (Reference FerlieFerlie, 2017).

Table 1Doctrinal components of New Public Management

Source: Adapted from Reference HoodHood, 1991.

Market reforms included the privatisation of nationalised industries like public utilities, the outsourcing of public services to third parties, and the creation of ‘quasi-markets’ for those services still directly delivered by government. For example, the introduction of the internal market to the National Health Service in 1991 separated purchasers (i.e., health authorities and general practice fundholders) from providers (i.e., hospitals and community health service providers) and charged the former with ‘seeking the most cost-effective forms of care for their local population’ by ‘contracting with hospitals and community health Trusts to provide necessary care’ (Reference Rosen and MaysRosen and Mays, 1998, p. 105) – indicative of doctrines four and five (Reference Ferlie, Ashburner, Fitzgerald and PettigrewFerlie et al., 1996; Reference FerlieFerlie, 2017).

Management reforms focused on disaggregating and downsizing bureaucracies (e.g., Next Steps Initiative), exporting operations into executive agencies that were then performance managed from above by political principals (Reference FerlieFerlie, 2017, p. 2). This marked a purposeful step-change from the security of rule- and duty-bound post-war government and moved the power of trade unions and public servants into the hands of professional managers akin to doctrines one and seven (Reference FerlieFerlie, 2017). Through corporate governance reform, leaner executive boards would enable management by setting performance objectives rather than having them serve representative functions as expressed in doctrines one, two, three, six and seven.

Measurement reforms underscored the role of metrics in enabling management and external accountability; it was the fuel of NPM reforms as in doctrine two. Self-regulation and an emphasis on professional duties were forsaken as accountability mechanisms in favour of new regulatory (e.g., Office for Standards in Education, Children’s Services and Skills (OFSTED)) and audit organisations (e.g., Audit Commission for Local Government (now defunct)). Performance management systems were built to identify poor performers using newly and systematically collected organisational data.

While NPM remains a global phenomenon, countries vary in their approach to reform. New Zealand split purchasers and providers of services into separate specialised organisations with widespread contracting out (Reference Halligan, Christensen and LægreidHalligan, 2011). Sweden downsized their public service on the back of the 1990 fiscal crisis, decentralising service delivery responsibility to local governments who, in turn, looked to ‘responsive’ nonprofits and private firms to deliver services (Reference Hansen, Christensen and LægreidHansen, 2011).

While the UK has perhaps experimented most extensively with NPM reforms, the US is viewed as an ‘idiosyncratic hybrid’ combining ‘pre-, non- or even anti-NPM strands’ characterised by a continuation of efficiency reforms as well as anti-bureaucratic and anti-waste narratives (Reference FerlieFerlie, 2017, p. 8; Reference Pollitt and BouckaertPollitt and Bouckaert, 2017). Instead of trying to move service delivery closer to market models as in the UK with the internal market of the NHS, US practitioners and academics emphasised the role of intraorganisational management in making public programmes more efficient. This stemmed from a fundamental belief that internal administrative processes like strategic planning, process mapping, management-by-objectives, total quality management, and performance management and budgeting were more important tools than market forces for driving improvement (Reference BerryBerry, 1994; Christensen and Laegreid, 2002; Reference Gueorguieva, Accius, Apaza, Bennet, Brownley and CroninGueorguieva et al., 2009; Reference Moynihan, Fernandez, Kim, LeRoux, Piotrowski and WrightMoynihan et al., 2011; Reference Moynihan and KrollMoynihan & Kroll, 2016; Reference SwissSwiss, 1992).

US hybridity is observed in the federal government public management reforms of the 1990s. Led by then Vice President Al Gore, the National Performance Review (NPR) emphasised savings and downsizing – core NPM virtues – while also calling for empowerment and innovation. The NPR was in part inspired by Osborne and Gaebler’s 1992 book Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector from Schoolhouse to Statehouse, City Hall to the Pentagon. Comprised of ten principles, the book largely suggests that government can be transformed the same way that corporations were transformed: by becoming more client-focused, less bureaucratic, more flexible and innovative, and more entrepreneurial (Reference WeissWeiss, 1995). Despite breaking the principal-agent relationship of the legislative branch with the executive, the argument was not to reduce either’s role in contemporary society but rather to fix the systems within which government workers operate, resulting in a ‘smaller but stronger’ organisation: governments should eschew operational delivery in favour of oversight, establishing ‘steering organisations’ that focus on system-wide leadership and policy development with enhanced monitoring and evaluation.

Despite variation in adoption globally, NPM inspired reforms changed the model of state instrumentation and intervention – supplanting direct government for indirect governance. Marketisation through privatisation resulted in a larger move away from direct policy tools including direct spending, payments to individuals, and direct loans towards indirect policy tools such as regulation, vouchers, grants and contracts (Reference SalamonSalamon, 2000). Savas, privatisation’s greatest apostle, described it as ‘changing from an arrangement with high government involvement to one with less’ (1987, p. 88). In practice, privatisation is an umbrella term for the many different policy tools governments use to delegate authority, incentivise organisational effort towards policy goals, and communicate the nature of relationships with third parties. Governments decentralised and deregulated, encouraging private delivery in traditionally public sectors – including natural monopolies like water and transit. Inter-municipal cooperation and cross-sectorial partnering were also popular options as alternative or softer forms of privatisation (Reference Alonso, Clifton and Díaz-FuentesAlonso, Clifton and Díaz-Fuentes, 2015; Reference Koliba, Meek, Zia and MillsKoliba et al., 2019). Governments transferred ownership via the sale of state-owned assets and enterprises. They contracted out public services to reduce state-monopoly delivery and encourage competition.

The strongest proponents of NPM were neoliberal politicians supportive of enhanced public sector efficiency and user-orientation as well as public managers either loyal to these politicians, keen to advance their bureaucratic control, or both. Its critics, meanwhile, have been individuals who oppose the blending of marketisation and managerialism on normative grounds, employees who have experienced the negative impacts of NPM, and researchers who have explored the effects of NPM and found them lacking (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020).

In truth, the effects of NPM have been largely context-dependent and difficult to generalise (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020). Nevertheless, as they have aged, NPM reforms are largely believed to have failed to make good on their glittering promises and instead have ‘tended to distract middle- and upper- level officials, create massive paperwork, and produce major unintended effects’ by mindlessly pushing the adoption of ‘poorly grounded recipes for institutional design … a commonly observed feature of administrative reform processes’ (Reference Hood and PetersHood and Peters, 2004, p. 278). Hood and Dixon’s assessment of 30 years of NPM reform in the UK showed ‘a darker picture of government costing substantially more and working decidedly worse’ with increased running costs alongside soaring complaints and legal challenges (Reference Hood and DixonHood and Dixon, 2015, Reference Hood and Dixon2016).

2.2 Collaboration

While NPM may have failed to deliver a government that ‘worked better and cost less’, it did spur significant growth in third-party providers of public goods and services (Reference Hood and DixonHood and Dixon, 2015). As the number of provider organisations grew, so too did fragmentation and competition in local systems (Reference Christens and InzeoChristens and Inzeo, 2015). This resulted in a distinct preference for partnership and collaboration from multiple sources, including ‘professionals, foundations, researchers, government agencies, and groups of organizations and volunteers … each perceive[ing] the clear need for greater communication, collaboration, and co-ordination of organizational efforts to achieve desired outcomes in local communities’ (FitzGerald, Rosenbach et al., 2021 quoting Christens and Inzeo, 2015, p. 423).

In addition to reducing the formal size of government and changing the production of public services, privatisation changed the type of work being executed within public agencies (Reference Ferlie, Ashburner, Fitzgerald and PettigrewFerlie et al., 1996). By early 2000s, the environment and practice of public management had fundamentally shifted and public managers increasingly found themselves ‘facilitating and operating in multiorganizational arrangements to solve problems that cannot be solved, or solved easily, by single organisations’ (Reference O’Leary and VijO’Leary and Vij, 2012, p. 509). Governments increasingly partnered with public, private, and nonprofit organisations to implement policies, advancing the practice of collaborative public management.

In 2012, O’Leary and Vij outlined five reasons for the growth in collaborative public management practice and scholarship. First, perennial public challenges required new approaches and were larger than one organisation. Second, outsourcing – itself a ‘collaborative endeavor’ – had increased in ‘volume and dollar amount’. Third, in pursuit of enhanced effectiveness, public officials were seeking new ways of delivering public services. Fourth, technology had enabled ‘integrative and interoperable’ information sharing, ‘with the outcome being a greater emphasis in collaborative governance’. Fifth, citizens were seeking further engagement in governance, resulting ‘in new and different forms of collaborative problem solving and decision-making’ (Reference O’Leary and VijO’Leary and Vij, 2012, p. 509).

This collaborative turn – or ‘move to partner’ – aligns with the emergence of New Public Governance as a public governance paradigm (NPG) (Reference Koliba, Meek, Zia and MillsKoliba et al., 2019; Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020). Unlike NPM, ‘a child of neo-classical economics’, NPG’s intellectual roots can be found in theories from organisational sociology, institutional theory, network theory, and beyond (Reference OsborneOsborne, 2010, p. 8). NPG assumes a plural and pluralist state characterised by inter-dependent policy-making and policy-implementing networks. Inspired by Elinor Ostrom’s work on the collaborative management of common pool resources and a broader academic search for alternatives to markets and hierarchies, NPG scholarship emphasises ‘the formal and informal processes through which a plethora of public and private actors formulate and achieve joint objectives through collective action’ (Reference Ansell and TorfingAnsell and Torfing, 2016; Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 132).

As a public governance paradigm, NPG is somewhat inchoate, concerning itself with the growth and structure of inter-organisational collaborations, the environment and constraints on collaboration, the situation and function of public managers in a network, the governance and decision-making mechanisms collaborations adopt and use, definitions of work, processes and goals, and the impact of collaborations on public policy and the policy process (Reference O’Leary and VijO’Leary and Vij, 2012). Hence, NPG-inspired reforms typically ‘stress service effectiveness and outcomes’ and emphasise ‘the design and evaluation of enduring inter-organizational relationships, where trust, relational capital and relational contracts act as the core governance mechanisms’ rather than intra-organisational progress in competitive environments (Reference OsborneOsborne, 2006, pp. 382, 384).

Through the establishment of co-equal ties, coalitions and networks are understood as ‘the primary vehicle for pluri-centric coordination and interactive governance’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 127). This means that at any given time, public managers ‘may be simultaneously involved in managing across governmental boundaries, across organisational and sectoral boundaries, and through formal contractual obligations’ (Reference McGuireMcGuire, 2006, p. 35). Conceptually, however, what constitutes collaboration is highly variable including long-term arrangements ‘encouraged or prescribed by law’; formal ties within specific policy areas as with strategic suppliers; short-term informal partnerships; and even intermittent coordinative exchanges – any of which may use public contracts (Reference McGuireMcGuire, 2006, p. 35). Mandell and Steelman helpfully categorise collaboration along a spectrum where coalitions and networks are situated at either extreme. For them, coalitions are comparatively narrow in scope, participant organisations largely act in isolation, and the arrangement is likely to disband after participant organisations’ tasks are finished or the problem has been resolved. Networks, meanwhile, demonstrate ‘a strong commitment to multiorganizational-level goals’ with interdependent ways of working, risky and extensive resource sharing, and operate indefinitely as the problems they seek to address are long-term or evolve (Reference Mandell and SteelmanMandell and Steelman, 2003; Reference McGuireMcGuire, 2006).

Networks have been identified and studied from a variety of perspectives (Reference Molin and MasellaMolin and Masella, 2016). Networks can be thought of as both structural phenomena and vehicles for exchanging information, developing organisational capacity, and developing administrative capacity to enhance joint-working. Networks are thought to organise collective action by formally adopting ‘network-level courses of action and often delivering services’ (Reference AgranoffAgranoff, 2003). Literature in the network governance tradition treats networks as a mechanism of coordination distinct from hierarchy or markets whereby networks are able to produce outcomes that could not be produced by any member organisation in isolation (Reference Provan and KenisProvan and Kenis, 2008). Focus is thus placed on how network conditions lead to the production of network-level outcomes, including building evidence on which network structures and processes should be adopted based on measures of network effectiveness (Reference Provan and KenisProvan and Kenis, 2008). Consequently, network governance literature focuses on steering or orchestration activities often executed by public authorities charged with governing networks (Reference Sørensen and TorfingSørensen and Torfing, 2009).

NPM-era outsourcing fundamentally cast governments as principals and providers as agents in perpetual competition. With NPG, the role of public authorities is more so that of a steward involved in critical ‘meta-governing processes’ of monitoring and guiding the activities of public service contractors (Reference Baker and StokerBaker and Stoker, 2012, Reference Baker and Stoker2013). Crucially, while contractors have legal obligations – through bilateral agreements with government or as a subcontractor to government – overarching public service networks typically lack their own legal imperative. Because of this, some form of governance is necessary to ensure participants engage in collective action, that conflict is addressed, and that resources are acquired and used effectively (Reference Provan and KenisProvan and Kenis, 2008). Thus, the governance of public service networks has come to include strategic and operational decision-making whereby government is most commonly responsible for defining inter-organisational goals, outlining operational rules, determining membership of the network, and in some instances, retaining responsibility for network administration (Reference Ansell and GashAnsell and Gash, 2008; Reference Koliba, Mills and ZiaKoliba et al., 2011).

Scholars have expressed optimism and hesitance about organising the state through contracts and networks: utilising networks can be a less predictable and weaker form of social action and can complicate coordination and accountability, but at the same time networks provide greater flexibility and adaptability (Reference Milward and ProvanMilward and Provan, 2000, p. 362; Reference FitzGerald, Rosenbach and HameedFitzGerald, Rosenbach, et al., 2021). Contrasted to privatisation – which devolves public responsibility to private actors – network-based partnership promotes shared responsibility and risk, blurring sectoral differences (Reference RosenauRosenau, 2000; Reference Koliba, Meek, Zia and MillsKoliba et al., 2019). With no clear principal or agent, the accountability relationships in networks are thus recognised as being different from those found in the dyadic linkages of public contracts: networks are responsible for more than simply the sum of member organisations’ contract specifications (Reference Agranoff and McGuireAgranoff and McGuire, 2001). In hollow states organised through consociational arrangements structured formally by contracts and informally through relationships across levels of government and amongst stable networks of service providers, public managers are forced to shift their concerns away from organisationally determined accountability to notions of responsibility, responsiveness, and the fostering of democratic ideals: effectiveness, as ‘accountability for’ becomes at least as important as oversight and reporting or ‘accountability to’ (Reference Agranoff and McGuireAgranoff and McGuire, 2001).

TPA, NPM, and NPG represent ‘relatively coherent and comprehensive norms and ideas about how to govern, organize and lead the public administration’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020). They attempt to capture government experimentation with ‘policies, strategies, programmes and institutional templates that govern the particular manner in which the public sector is structured, functioning and operating’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020). Explanations for shifts between paradigms depend on historical interpretation. A political lens suggests that paradigmatic shift is the consequence of decisions taken by political elites. An institutional lens finds that governance changes reflect widely held beliefs about what ‘an appropriate way forward’ looks like at a given time in a given context (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020).

A functional lens suggests that paradigms ‘provide a plausible answer to specific problems and challenges that are accumulated in relation to the dominant governance paradigm’ (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 152). In this way, NPM can be understood as a response to the inability of bureaucracies – both perceived and real – to respond to policy problems, including attending to economic growth. NPM can be cast as both a governance revolution promoted by neoliberals and neoconservatives trying to challenge ‘central welfare state values’ as well as a strategic response to fiscal stress and an attempt to preserve critical aspects of the post-war welfare state. Similar narratives could be used to explain NPG, but functionally it promotes horizontal coordination through networks and partnerships as a remedy for the dysfunctions of markets and fragmentation wrought by NPM. It likewise combats the assumption of homo economicus promoted by NPM by re-norming value articulation as a governance mechanism and intrinsic incentive (Reference Koliba, Meek, Zia and MillsKoliba et al., 2019; Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 155).

2.3 Contracts

A sequential take on governance paradigms is a helpful organisational device, but in practice paradigmatic delineations are less clear. Governance paradigms coexist and compete, producing context-specific hybrids where authority, incentives, and values become difficult to situate within institutions and within the multilevel, multiplex networks which characterise policymaking and policy implementation today – an emerging paradigm Koliba and colleagues refer to as Governance Network Administration (GNA) (Reference Koliba, Meek, Zia and MillsKoliba et al., 2019). Amidst this complexity, and as the preferred tool of indirect government, contracts play a hugely important role as they define what success looks like, set incentives for organisations to achieve it, and describe how parties should work together.

Despite their pre-eminence across post-bureaucratic public governance paradigms, getting contracts to ‘work’ remains challenging for governments. Technocratic fixes to the challenges of public contracting often focus on trying to ‘complete’ contracts. Because no person can design a contract which provides recourse for every eventuality faced by the parties privy to it, all contracts can be viewed as inherently incomplete (Reference CoaseCoase, 1937; Reference HartHart, 1988; Reference Van SlykeVan Slyke, 2007). Often, negative eventualities are caused by missteps in negotiating the relationship between purchasers (or principles) and suppliers (or agents). Transaction cost economics posits that the relationship between a purchaser and supplier is an ‘exercise in reducing the transaction costs of negotiating and managing the relationship, while acknowledging the human characteristics of opportunism and bounded rationality’ (FitzGerald et al., 2019, p. 459 referencing Williamson, 1985). Because purchasers have incomplete knowledge about suppliers, context, and the future, they cannot specify a contract which protects them from the likelihood that suppliers will behave opportunistically to boost their own profitability. For public service providers this could mean reducing costs by sacrificing quality or appropriating value by prioritising less costly populations for support (Reference LazzariniLazzarini, 2020; Reference FitzGerald, Tan, Carter and AiroldiFitzGerald, Tan et al., 2023).

Where purchasers are unaware of their own incomplete information and are not concerned with suppliers’ self-interest, they may opt to arrange a ‘general clause’ contract specifying only that both parties act in good faith. Conversely, where purchasers recognise information asymmetries that may lead to suppliers taking advantage, they can endeavour to move towards comprehensive contracting. The types of contracts expected given opportunism and bounded rationality are shown in Table 2. Notably, Williamson claimed that only the lower-right quadrant ‘accords with reality’ (Reference WilliamsonWilliamson, 1985, p. 67). Because complete contracts are an impossibility, principals are in actual fact tasked with designing a ‘requisite’ contract, one that combats opportunism without over inflating costs (Reference WilliamsonWilliamson, 1985; Reference Brown, Potoski and Van SlykeBrown, Potoski and Van Slyke, 2018; Reference FitzGerald, Carter, Dixon and AiroldiFitzGerald et al., 2019).

Table 2Contract types under bounded rationality and opportunism (Adapted from Williamson, 1985)

The argument is that the involvement of profit-seeking private actors can be beneficial in areas where quality is more straightforwardly monitored, that is, where contracts are more easily completed. Crucially, monitoring the quality of private goods and services is very different than monitoring that of public ones. For the former, the important elements of quality have market proxies, namely price. For public goods and services, important attributes of quality are harder to contract and verify – improvements to quality of life, reductions in homelessness, optimal job placement or improved job retention. Indeed, a perennial problem in public contracting is incentivising service providers to support the full range of programmatic objectives sought by governments rather than simply progressing those which maximise profit (Reference LazzariniLazzarini, 2020).

Efforts to complete contracts can take a variety of different forms many of which emphasise the rather technical specification of incentives through payment of enforceable commitments. Under NPM-inspired approaches, ‘competition supplemented with performance measurement linked to conditional incentives’ was intended to combat opportunism and provide public accountability (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 56). Consequently, contract forms associated with NPM often stipulate prices or methods of calculating payment for the delivery of services: fixed price, cost-reimbursement, cost-plus, time and materials, fee-for-service, unit price. These kinds of contracts leave governments to pay in arrears and are designed principally to control costs, provide oversight of activities, and enhance efficiency. Awarded through procurement processes designed to promote competition at the point of award to secure the lowest price from providers, contracts which focus on the authentication of costs and completion of activities can enable governments to drive down cost, but this can compromise quality (Reference Shiva, FitzGerald, Carter and AiroldiShiva et al., 2024). This ‘tyranny of lowest price’ fundamentally increases the risk of contract failure as suppliers are incentivised to underbid with governments paying regardless of whether contracted services achieve programme objectives and overarching policy goals.

Concern about the growth of government contracting often focused on the degree to which government authority was too ‘dispersed’ and ‘diluted’ to effectively deliver accountability to the public. While early rhetoric regarding contracting out was alarmist (Reference SalamonSalamon, 1989), later research on indirect government sought to refine key concepts and test the effects of ‘changing governance configurations’ on efficiency and effectiveness as well as equity of access, client responsiveness, democratic accountability (Reference Heinrich and MarschkeHeinrich, Lynn and Milward, 2010, p. i4).

The underperformance of early outsourcing encouraged broader experimentation with performance contracting as a way to fix poor quality issues and better align diverse public and private interests, better reflecting ‘the complicated nature and “technology” of public programs’ (Reference BarnowBarnow, 2000; Reference Heckman, Heinrich, Courty, Marschke and SmithHeckman et al., 2011; Reference Heinrich and KabourekHeinrich and Kabourek, 2019, p. 869). ‘Where the 1980s had assumed contractors were greedy criminals, the 1990s recognised that most contractors are industrious resources willing to fulfil the government’s need with ingenious solutions for a fair price’ (Reference NagleNagel, 1999, p. 508). Longer-term contracts that transferred the design and operation of public services to the private sector emerged, creating public–private partnerships across levels of government, in a range of shapes and sizes, and in a variety of policy areas, including innovation partnerships, urban development, infrastructure projects, public services, and policy partnerships (Reference Torfing, Andersen, Greve and KlausenTorfing et al., 2020, p. 127). Governments likewise began designing contracts which paid on the basis of delivering outputs (e.g., a certain number of attendees at a job readiness course) rather than activities (e.g., holding three job readiness courses) as way of bolstering service effectiveness and offsetting risk (see Table 3). These early-term output incentives, however, were found to only loosely and sometimes negatively correlate with longer-term policy goals (Reference BarnowBarnow, 2000; Reference Schochet, Burghardt and McConnellSchochet, Burghardt and McConnell, 2006; Reference Heinrich and MarschkeHeinrich and Marschke, 2010), meaning that while the amount paid by public managers would vary by level of success, a valid link between success as defined by the contract and success in terms of achieving policy goals and objectives was tentative at best.

Table 3Public governance paradigms and contract forms (Adapted from Osborne, 2006; Koliba et al., 2019)

More recent experimentation extends the logic of performance contracting, shifting the focus from outputs to outcomes in an attempt to enhance accountability, reduce opportunism, and further improve service quality through personalisation and innovation (Reference Bovaird and DaviesBovaird and Davies, 2011; Reference FitzGerald, Fraser and KimmittFitzGerald, Fraser and Kimmitt, 2020; Reference FitzGerald, Tan, Carter and AiroldiFitzGerald et al., 2023a; Reference Olson, Painter, Albertson, Fox and O’LearyOlson et al., 2024). Outcomes are increasingly used to promote collaboration and flexibility in service provision and frequently feature in how public bodies are assessed, as definitions of success, as mechanisms for collaboratively designing and prioritising interventions, in deciding who and how to contract with partners, and to incentivise interdependent activity during delivery (Reference Bovaird and DaviesBovaird and Davies, 2011). There exists an array of outcomes-oriented reforms in public contracting, each distinguished by ‘a financial logic’ meant to ‘shape decisions about how to invest public, philanthropic and financial capital in social programmes in deference to expectations about the kinds of returns that can be expected’ (Reference FitzGerald, Tan, Carter and AiroldiFitzGerald et al., 2023a, p. 331).

Outcomes-orientation has four major categories relevant to public contracting. First, outcomes-oriented funding evaluates service provider performance using outcomes but does not explicitly tie the achievement of outcomes to payment as in results-driven contracting (e.g., European Social Fund). Second, outcomes-based funding as in OBC evaluates service provider performance using outcomes and does explicitly tie the achievement of outcomes to payment as in payment-by-results (e.g., UK Work Programme, UK Troubled Families, USAID Financing Ghanaian Agriculture Project). Third, investor-backed OBC where payment is contingent upon outcomes achievement and investors cover the up-front costs of service delivery as in social outcomes contracts (SOCs) – also known as social impact bonds (SIBs), development impact bonds, social benefit bonds, or pay-for-success (PfS) initiatives (Reference FitzGerald, Tan, Carter and AiroldiFitzGerald et al., 2023a). Fourth, where outcomes are additional to the primary policy objective of a contract. Called ‘collateral policies’ (Reference Cibinic and NashCibinic & Nash, 1998), ‘buying social justice’ (Reference McCruddenMcCrudden, 2007), ‘horizontal policies’ (Reference ArrowsmithArrowsmith, 2010), ‘buying social’ (EC, 2011), and ‘social value’ (UK Cabinet Office, 2021), these outcomes feature as additional elements which are built into public contracts to pursue wider economic, social, or environmental policy goals (as in sustainable or green public procurement). These additional outcomes can feature in any public contract, including health and social care, and articulate, for example, explicit preference to contract with small or local businesses, for suppliers to report and minimise carbon emissions, requirements of non-discrimination in employment, or preference for bids which advance job creation.

Crucially, the use of outcomes aligns with a general shift from technocratic to relational mechanisms for completing contracts whereby outcomes are both extrinsic incentives and frameworks to enable collective action amongst service providers. Even as governments have moved to collaborate, their reliance on contracts has not abetted for important reasons explored in Section 3. New ways of contracting have been explored which deemphasise transactional dynamics between purchasers and suppliers in favour of relational mechanisms. While shades of relationalism feature in long-standing contract theories in the form of probity and trust, attempts to design governance mechanisms which advance or accelerate such elements are fairly recent. Applied work on public contracting has thus transitioned from suggesting technocratic remedies for one-off contracts between government and a single provider to describing how contracts might inform ongoing partnerships between governments and provider consortiums by outlining dynamic governance mechanisms that foreground the enabling role of trust between parties. Echoing lessons from collaborative governance and governance network literature, some scholars have noted and called for more ‘braiding’ of formal and information contract mechanisms (Reference Gilson, Sabel and ScottGilson, Sabel and Scott, 2010), framed by others as ‘formal relational contracting’ (Reference Frydlinger, Hart and VitasekFrydlinger, Hart and Vitasek, 2019). While the focus of relational contracting was initially on private contracting, there are more recent expressions of hope that relational contracting approaches will improve public contracting for social outcomes (Reference Carter and BallCarter and Ball, 2021; Reference GibsonGibson, 2023).

3.1 Specialised Public Managers

Public procurement professionals are specialised public managers charged with awarding and managing government contracts. As noted by the OECD, public procurement is ‘recognised as a strategic instrument for achieving government policy goals aligned with the 2030 Agenda for Sustainable Development, including promoting a circular and green economy, stimulating innovation, supporting small and medium-sized enterprises, and promoting ethical behaviour and responsible business conduct’ (OECD, 2023, p. 6). In the US, Europe, and elsewhere, these public managers have a wide range of discretion in the expenditure of huge sums of public money and the delivery of essential public services. This discretion includes contract design – selecting the right contract type or a blend of contracts, considering issues of pricing, risk, and incentives – and then working with contractors throughout contract performance.

In the US federal procurement system, a highly specialised public manager role is prescribed in regulations – along with subordinate functions to which some authority is delegated. The authority to ‘enter into, administer, or terminate’ a government contract is given only to the role of ‘Contracting Officers’ (FAR Subsection 1.602-1). The Federal Acquisition Regulation (FAR) also provides that ‘[c]ontracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. To perform these responsibilities, Contracting Officers should be allowed wide latitude to exercise business judgment’ (FAR Subsection 1.602-2 Responsibilities). The Contracting Officer has an important discretionary role when making any contract award. The FAR provides that contracts can only be awarded to ‘responsive prospective contractors’ and that, after the procurement procedure and before the award of a contract, the Contracting Officer must make ‘an affirmative determination of [contractor] responsibility’ (FAR Section 9.103). The Contracting Officer must thereby determine that the prospective contractor meets various standards, including ‘a satisfactory record of integrity and business ethics’ (FAR Subsection 9.104-1). For contract management and administration, the Contracting Officer delegates authority to a Contracting Officer’s Representative (COR), who must be trained and experienced, but the authority to make changes to the contract is not delegated to the COR (FAR 1.602-2).

The structure size of the procurement workforce in the US government has received regular attention from the US Congress, including through various commissions, legislation, and numerous reports from the US Government Accountability Office (GAO). Examples include the President’s Blue-Ribbon Commission on Defense Management (the Packard Commission) in the 1980s, the Defense Acquisition Workforce Improvement Act in the early 1990s, and related reforms established acquisition career paths for military and civilian personnel and a Defence Acquisition University. The strengthening of individual managers at the level of contracting entities and the contract was clearly framed as consistent with the then President Regan’s distrust of government and the quest to be more like the private sector. The Chairman, David Packard (co-founder of computer giant Hewlett-Packard or HP), noted in his foreword to the report:

The EU, meanwhile, does not prescribe roles in the Procurement Directive – this is a matter for member states. Nonetheless, the European Commission has taken steps to clarify and strengthen public procurement roles, including the publication in 2020 of a ‘European competency framework for public buyers (ProcurCompEU)’ pursuant to the 2017 adoption of ‘Recommendation on the professionalisation of public procurement as one of the priorities of EU public procurement strategy’ (European Commission, 2017, 2020). The ProcureComEU materials summarise practical challenges in public procurement, namely that it is ‘not a clearly defined organisational function with a corresponding training, recruitment and career path’ and is ‘frequently conducted as an additional task by civil servants that may lack specific procurement-related skills’. Furthermore, ‘business-related skills are often underrated in the public administration resulting in an overly legalistic, compliance-focused approach’ (European Commission, 2020, p. 12). In ProcureCompEU, public contracting activities and responsibilities are described and structured in thirty competencies divided into procurement-specific competencies and soft competencies. Many of these competencies might feature in any private sector organisation, but some highlight the public nature of the role. Perhaps the clearest example is ‘Competence 3, Legislation,’ which provides:

There has been a long trend in growing the discretion of public managers involved in public procurement. To address problems in US government procurement of computing technology in the 1980s, Steve Kelman called for greater public manager discretion, suggesting that its absence ‘extracted a terrible cost in the poorer performance of contractors selling computer systems to the government (and in other areas of procurement as well)’ (Reference KelmanKelman, 1990). At the turn of the millennium, Sue Arrowsmith noted a trend in the UK, US, and other states towards more discretion rather than detailed legally enforceable transparency requirements (Reference Arrowsmith and TrybusArrowsmith and Trybus, 2002). However, the ‘right’ amount of discretion and transparency around procurement remains unclear. For instance, recent quantitative studies based in Europe find that discretion is associated with the section of politically connected firms (Reference SzucsSzucs, 2023), especially by less transparent public authorities (Reference Baltrunaite, Giorgiantonio, Mocetti and Tommaso.Baltrunaite et al., 2021). Similarly, research has found that discretion is associated with more frequent awards to the same organisations, although this does not necessarily negatively affect procurement (Reference Coviello, Guglielmo and SpagnoloCoviello et al., 2017).

The ongoing international movement to professionalise public procurement is focused on more discretionary and strategic functions rather than administrative functions. Professionalisation includes setting certification and training standards to encourage the development of competencies that blend the public policy and business elements of the role. Reforms related to the training of public managers in the procurement workforce have continued through the present day and the priorities of different administrations have been reflected. This is illustrated by a recent (2023) White House memorandum on the ‘Federal Acquisition Certification in Contracting (FAC-C) Modernization’, which states:

The reference to equity in the memorandum above is consistent with an executive order issued by President Biden in 2021 on his first day in office, titled Advancing Racial Equity and Support for Underserved Communities Through the Federal Government (Office of Management and Budget, 2021, Executive Order 13985). This executive order specifically references public procurement and required agency heads to submit a plan for addressing ‘any barriers to full and equal participation in agency procurement and contracting opportunities’.

3.2 Procurement Rules

The specialised duties and skills expected of public procurement professionals are conveyed across three layers of rules, as expressed in Table 4: overarching procurement principles; ties to wider economic, social, and environmental policy goals; and rules directly related to the transaction or collaboration.

Table 4Three layers of procurement rules

Furthest from the transaction, overarching procurement principles embody commitments to public values like transparency, integrity, and competition (Reference SchoonerSchooner, 2011, Reference Schooner2002). These principles are evident in international trade and international development, including anticorruption mechanisms and the strengthening of national and local public financial management systems. For example, twenty-one parties are subject to the World Trade Organisation’s Government Procurement Agreement (GPA), including the US, EU, and UK (with the EU’s twenty-seven countries counted as one party). The GPA includes commitments regarding non-discrimination and the conduct of procurement. Another example is found in the Model Law on Public Procurement adopted by the United Nations Commission on International Trade Law (UNCITRAL), which reflects international procurement best practices that balance efficiency and performance alongside legal and democratic values of accountability, transparency, fairness, and equality (Reference Yukins and NicholasYukins and Nicholas, 2023). The preamble describes objectives:

Significantly, these overarching principles do not focus on getting the lowest price, suggesting that the role of the modern procurement professional is more about getting value and effectiveness from contractors than pushing them to lower prices. The EU’s Procurement Directive provides that awards will be based on the most economically advantageous tender, often referred to as ‘MEAT’, and this ‘shall be identified on the basis of the price or cost, using a cost-effectiveness approach … and may include the best price-quality ratio, which shall be assessed on the basis of criteria, including qualitative, environmental and/or social aspects, linked to the subject-matter of the public contract in question’ (EU Directive 2014/24, Article 67). In the US, FAR provides a commonly used process for negotiating contracts to achieve the best value and allows the Contracting Officer to ‘trade-off’ cost and non-cost factors, such as the quality of the approach or past performance.

The middle layer of rules relates to leveraging public spending through government contracts to help achieve wider economic, social, and environmental goals. Issues of effectiveness and equity in areas such as sustainability and local economic development are being considered at the point of contract award and during contract delivery (Reference Schooner and SpeidelSchooner and Speidel, 2020). Akin to the fourth form of outcomes-orientation outlined in Section 2, these rules often allow for the inclusion of outcomes that are additional to the primary policy objective of a contract. For instance, a government contractor engaged to build a school may also be required to report carbon emissions during construction, commit to hiring local apprentices to work on the project, or engage small businesses or social enterprises.

McCrudden labels attempts to tie policy goals and contracting policy as ‘procurement linkages’ exemplified in disabled workers’ rights after the Second World War as well as civil rights and anti-discrimination laws in the US, Europe, Canada, and Australia resulting in selective purchasing and boycotts for different categories of business (e.g., ‘set-asides’ in the US) (Reference McCruddenMcCrudden, 2007). In the UK, the practice of implementing wider economic, social, and/or environmental policies through public contracts is labelled ‘social value’ by the Public Services (Social Value) Act 2012 and is advanced by various Public Procurement Notices (PPNs). Social value is also promoted in the current UK National Procurement Policy Statement, a publication that now has a legal basis in the UK’s new Procurement Act (2023). The Statement provides: ‘All contracting authorities should consider the following national priority outcomes alongside any additional local priorities in their procurement activities: creating new businesses, new jobs and new skills; tackling climate change and reducing waste, and improving supplier diversity, innovation and resilience’ (UK Cabinet Office, 2021, p. 3).The various UK social value policy statements provide a similarly broad framework with a wide range of policies that may be included in any public procurement (Cabinet Office, 2021). In Scotland, the Procurement Reform (Scotland) Act 2014 creates a sustainability duty and requirements to include ‘community benefits’ in contracts over a certain threshold or provide an explanation of why these are not applicable.

Crucially, this category of outcomes orientation is growing – especially in green public procurement and the pursuit of carbon emission targets (i.e., Net Zero goals) through government contracts (Reference SchoonerSchooner, 2021; Reference Dimand and ChengDimand and Cheng, 2023; Reference Janssen and CarantaJanssen and Caranta, 2023). In the UK, PPN 06/21 requires contractors over a certain size to produce Carbon Reduction Plans setting out how the organisation intends to achieve ‘net zero’ carbon emissions by the year 2050. The US now has a ‘Buy Clean Initiative’ and recently proposed a new rule for the FAR that would require Federal contractors (over certain sizes) to disclose emissions, disclose climate-related financial risk, and set targets to reduce greenhouse gas emissions (US Gov, 2022). The EU also has developed various materials and tools to support green public procurement. Notably, the pursuit of Net Zero goals is not only a top-down policy issue. The 2015 Paris Agreement shifted carbon reduction from being a regulatory issue to a multilateral issue for many levels of subnational government and non-state actors (Reference HaleHale, 2016). This means that in addition to national-level targets, many contracting authorities have their own Net Zero targets and many try to implement these targets through their own contract spending. As climate change challenges grow, this area is likely to continue growing at all levels of government. Notably, concerns have been raised about accountability and the extent to which social value policy choices within contracts meaningfully reflect the priorities of nationally and locally elected offices or legislative bodies (Reference Davies, Buys and MacdonaldDavies, Buys and Macdonald, 2023).

Finally, public procurement professionals are constrained and enfranchised by terms within contracts as well as rules which stipulate how to enter and amend contracts. In a private contract, parties can focus on each other and their commitments to each other. Generally, they are the only party who can enforce those commitments. In contrast, external actors have a greater role in public contracts as they may dispute the award or performance of the contract based on failure of the public contracting authority to follow public law rules. Likewise, depending on the jurisdiction, other public law bodies may be involved in enforcing or monitoring the implementation of public law rules. The public nature of the contract can also limit the flexibility the parties have to change the contract. Changes in governmental requirements are often privileged above those of private parties. This privilege constitutes another source of risk for contractors and can undermine the ability of both parties to remain committed to firm prices longer term, especially over periods of volatility. Unlike a contract between private parties, where the parties can easily arrive at a new agreement and amend their contract, public parties must also consider whether the change requires a new procurement altogether.

The FAR provides detailed standard clauses for US government contracts which impact contract management, including clauses to make changes relatively easy for the government. In the US federal procurement system, the FAR gives the Contracting Officer significant power to unilaterally change the public contract and the contractor will have to comply (FAR Part 43). If an agreement about adjusting the contractor’s price cannot be reached, the contractor will be paid for the change based on their costs. In terms of any contracts involving a fixed price for outcome, this may mean that a change to the outcome may change the contract from fixed price to costs (i.e., from paying for an outcome to paying for inputs and activities). However, while the government’s power to make unilateral changes is very wide, it is not unlimited – US courts have decided the government cannot make a ‘cardinal change’ that would be a ‘drastic modification’ beyond the scope of the contract, though this will differ under circumstances of a specific contract (e.g., see US Court of Federal Claim decision in Air–A–Plane Corp. v. United States, 187 Ct.Cl. 269, 408 F.2d 1030,(1969)).

The EU’s Directive does not try to provide standard clauses for the contracts – this is for member states’ own contracting rules – but does provide some limitations on the changes that can be made. This area of public contracting has been called ‘dark side of EU procurement law’ due to the lack of transparency and research in the performance of government contracts when compared to the award of government contracts (Reference Dragos, Halonen and TreumerDragos et al., 2023 p. 1). The 2014 Directive does not give the relevant public manager this unilateral power. The EU Directive does provide for modification of contracts during their term (Article 72), under various circumstances, including the provision for amendments in the original published documents or changes that do not modify the contract for 50 per cent of the value of the original contract (Article 72). The European Court of Justice has emphasised that these changes cannot make the contract ‘materially different’ from the contract described in procurement notices.

3.3 Contract Design

At the nexus of the three layers of public rules described, public procurement professionals exercise their discretion directly in the award, design, and management of public contracts (Reference DaviesDavies, 2008). A central design consideration is the type of government contract awarded categorised according to the way that the enforceable commitments are priced. In the US, the FAR provides definitions and detailed clauses for different types of contracts, including fixed price contracts (i.e., payment as a predetermined value for services provided), cost reimbursement contracts (i.e., payment as allowable incurred costs of service provider), and time and material contracts (i.e., payment based on time and materials spent by service providers to fulfil agreed scope of work) – any of which may have a performance incentive element (See FAR Part 16). In the EU, the 2014 Directive does not provide such detail but leaves this up to member states. For example, the UK’s model services agreement provides for different pricing mechanisms, including fixed price contracts, time and materials, volume pricing, and a cost-based pricing called Guaranteed Maximum Price with Target Cost.

In the US, the selection of contract type is at the discretion of the Contracting Officer as a matter of ‘negotiation and requires the exercise of sound judgement’ (FAR 16.103). The FAR provides considerations for selecting contract types that are helpful for understanding incentives and encourage a blended approach or evolving blend of contract type during the course of service delivery and performance. For instance, an acquisition programme or even a contract may go through ‘changing circumstances’ where a different type of contract becomes appropriate in later periods than was used at the outset of the project (FAR 16.103-4). According to regulations, fixed price contracts are more suitable for less complex and less ‘governmental’ contracts:

In essence, the skill of public procurement professionals lies in their ability to specify and price enforceable commitments as well as articulate how their delivery will be verified. Fundamental to OBC is that the definitive enforceable commitment of the contractor will occur further into the delivery period than is traditionally the case. To illustrate this point, we use a generic logic model which represents the presumed path of converting resources into activities which generate priority outputs and outcomes. Historically, public contracts have worked to specify inputs and activities presumed to lead to outputs and outcomes. With OBC, the emphasis of those enforceable commitments shifts to the right – and a purely outcomes-based approach would effectively include a fixed price for outcomes – but in practice, a mix is often used (see Table 5 for further detail on enforceable commitments).

Table 5Enforceable commitments of contractor

Inputs that the government may need to make enforceable in the contract include personnel and facilities involved in contract performance. For example, the government may consider that the qualifications or experience of key personnel is an important criterion for awarding the contract and wants to approve key personnel changes. Similarly, the government may require that personnel working with vulnerable people have security clearance or background checks and that facilities meet relevant industry standards, all of which may be subject to change. For some activities, the government may need to require contractor compliance with a wide range of rules regarding safe workplaces, fair employment rules, environmental practices, accounting standards, anticorruption measures, conflict of interest rules, subcontracting rules, and beyond. More directly related to the programme, the government may want participation in regular monitoring meetings, a role in deciding who is eligible or ineligible for (or otherwise excluded from) programme participation, and a role in resolving complaints or emergency situations. The government may also need the contractor to participate in an evaluation or other third-party procedures to validate the achievement of enforceable commitments, especially outcomes. Meanwhile, contractors may also want enforceable terms around the government’s role in promoting or referring people into the social programme so that the outcomes can be achieved. Outputs that the government may need during the programme’s activities include periodic information on progress towards outcomes, whether as regular updates or detailed data to monitor progress or to comply with public information rules. The government may also want to understand how outcomes are being achieved and to secure learning outputs, technical guides, or other programme documents.

Still, as we describe in Section 4, the promises of OBC are principally advanced by tinkering with only one aspect of the contractual form: the enforceable commitment. The tension between a simple contract document that focuses on outcomes and a more complex contract that incorporates other rules is highly salient in outcomes contracting, and beyond. Practitioner advocates of outcomes contracts have emphasised that an outcomes contract should focus on fixed prices for the outcomes and avoid over specification of inputs or activities (Government Outcomes Lab, 2019). However, public rules compel public procurement professionals to further specify inputs, activities, and outputs so that they might discharge their duties rooted in the advancement of democratic values. This means that the contracts which structure outcomes-based contracts (OBCs) also require clauses about how human resources are to be managed, corruption is to be avoided, environmental sustainability is to be advanced, safety is to be ensured, and vulnerable populations are to be protected.

4.1 UK Outcomes Funds

We can explore further attempts to align policy design and implementation using OBC in two UK outcomes funds: the Department for Work and Pensions (DWP) Innovation Fund and the Department for Digital Culture Media and Sport (DCMS) Life Chances Fund.

Outcomes funds are formal processes for developing, approving, and funding multiple and simultaneous OBCs (Reference Savell, Carter and AiroldiSavell et al., 2022). Outcomes funds have been integral in solidifying the UK’s pre-eminence in OBCs globally, quickening the development of the social investment market and driving up the number of OBCs, particularly SOCs, domestically. The UK is home to 98 of the world’s 288 SOCs, 91 of which have been at least partially supported by an outcomes fund. Collectively, UK SOCs deliver a range of health and human services to over 116,000 individuals primarily in England (INDIGO, 2023).

Outside of the UK, outcomes funds are active in Africa with the 2018 establishment of the Education Outcomes Fund for Africa and the Middle East now active in Sierra Leone and Ghana as well as two outcomes funds in South Africa: the 2020 South Africa Green Outcomes Fund and the 2023 Jobs Boost Outcomes Fund; in Australia with the 2022 New South Wales Social Impact Outcomes Fund ($30 million (ASD) available for outcomes payments); in Latin America with the Logra Outcomes Fund in Colombia (Col$ 17.56 billion available for outcomes payments); and in Europe with Portugal Inovação Social (€15 million), the Dutch Brabant Outcomes Fund (€1 million), and two French outcomes funds: Economie circulaire (€10 million) and Egalité des chances économiques (€10 million) (Reference Savell, Carter and AiroldiSavell et al., 2022; INDIGO, 2023). In the US, the 2018 Social Impact Partnerships to Pay for Results Act passed through Congress, allocating up to $100 million USD for outcomes payments validated through independent experimental or quasi-experimental methods (Reference Savell, Carter and AiroldiSavell et al., 2022). Outcomes-based contracts are being increasingly launched in lower- and middle-income countries and are increasingly considered by international development agencies and financial institutions when they contract international development interventions (Reference Elsby, Smith, Monk and RonicleElsby et al., 2022).

One of the defining features of the UK SOC market is the role of central government, especially the 2010–2015 Conservative coalition government, which took up SOCs as a way to off-set austerity cuts in the wake of the global financial crisis by crowding in new forms of investment to the social sector (Reference WilliamsWilliams, 2020). In 2012, UK central government focused their efforts on building the supply side of the SOC market, establishing a pipeline of social investment capital from dormant bank accounts through the creation of Big Society Capital, a social investment wholesaler who has since seeded three SOC investment funds managed by Big Issue Invest and Bridges Fund Management (Reference WilliamsWilliams, 2020, p. 8). To build the demand side of the social investment market, UK central government has designed and launched ten outcomes funds, committing over £220 million to outcomes payments (Reference Savell, Carter and AiroldiSavell et al., 2022).

Generally, outcomes funds follow four key stages. The first is an initial designation of outcomes funding by one or more public, private, or philanthropic organisations. This designation of funding is often also publicised with set overarching objectives which might include the targeted number of OBCs to be supported, priority outcome areas, and indicative metrics for use in outcomes validation. The second phase is a call for proposals or invitation to tender where service providers, investors, intermediaries, public actors, and even pre-established partnerships are invited to submit bids in the hope of securing funding for outcomes which align with the articulated aims (e.g., supporting priority cohorts, promoting activity in specific policy areas) and means (e.g., agreeable outcomes prices, inclusion of essential stakeholders (i.e., co-funders of outcomes, investors, or evaluators), and participation in the outcomes verification process this is a floating) of the fund. The third phase involves an adjudication of bids by the funders or their agents. Where the outcomes funder is government, selection at this stage will likely kick off a more formal public procurement contract award process to formalise and mobilise the partnership. The final phase includes executing the process of validating and paying for outcomes as ascribed by the outcomes fund (Reference Savell, Carter and AiroldiSavell et al., 2022).

4.1.1 The Innovation Fund

The world’s first outcomes fund, the Innovation Fund, was led by the UK central government DWP. Part of a £60 million support package to improve outcomes for young people aged fourteen to twenty-four years who were or were at risk of becoming not in employment, education, or training (NEET), the Innovation Fund made £30 million available to provide support to SIBs (as they were then called) to test the effectiveness of social investment models for this cohort (Reference Savell, Carter and AiroldiSavell et al., 2022). The DWP expressed three overarching policy objectives for the Fund: (1) to deliver support to young people and improve their employability; (2) to test whether cashable savings can be realised alongside other fiscal and social benefits; and (3) to develop the social investment market, the capacity of smaller delivery organisations, and the evidence base for social investment arrangements. To structure the fund, the DWP set out general eligibility criteria and outcomes specifications based on a rate card included in the invitation to tender (see Table 7). On the back of this, SIB partnerships – which could include local authorities – were invited to submit bids to the DWP over two procurement rounds. The first, in April of 2012, resulted in six SIBs. The second round, in November of the same year, resulted in four.

Table 7DWP Innovation Fund rate card (Adapted from Griffiths, Thomas and Pemberton, 2016)

In these bids, SIB-providers tendered for targeted numbers of outcomes at specified unit prices. In the bid specification and application documentation for each round, the DWP outlined its maximum willingness to pay for particular social outcomes, allowing SIB-providers to define their intervention model, referral criteria, numbers, and mechanisms, and their preferred mix of outcomes at discounted unit prices from the rate card. The DWP did cap the total amount payable to SIB-providers on each project using the sum of the tendered number of outcomes multiplied by their unit prices (the ‘contract cap’) with the maximum amount payable per individual set first at £8,200 in round one and then climbing to £11,700 in round two. Policy documents have suggested that these individual payment caps were derived from three years of annually managed expenditure savings per capita – the value of avoided job seekers allowance for each individual (DWP, 2012; Reference Griffiths, Thomas and PembertonGriffiths, Thomas and Pemberton, 2016; Reference Thomas, Griffiths and PembertonThomas, Griffiths and Pemberton, 2016). All ten projects ran for three years, with outcomes monitored for an additional six months. To trigger payment from DWP, projects self-reported their achievement of outcomes using administrative data (Reference FitzGerald, Carter, Dixon and AiroldiFitzGerald et al., 2019).

4.2 Discussion

As policies, the Innovation Fund and the Life Chances Fund are consistent at the macro- and meso-levels. Broadly, they seek to improve outcomes for people while saving or avoiding costs. They also aim to build the social investment market by boosting the capacity of actors within that market to participate in OBC, and they attempt to create evidence on the efficacy of OBC particularly SOCs. They prescribe cross-sector partnerships involving investors structured via OBCs. At the micro-level, however, they convey considerable variance in policy targets and calibrations seemingly driven by diverging approaches to the level of discretion granted to project partners.

In the Innovation Fund, the DWP maintained direct discretion over policy targets and calibrations through the rate card, defining the core policy issue, providing outcomes definitions, and calculating maximum prices. The Fund also provided clear direction as to the process through which projects are expected to evidence their outcomes for payment. While local actors still assumed responsibility for fulfilling bid requirements, the design complexities of identifying and prioritising the service cohort, defining payable outcomes and providing for their validation, and securing additional outcomes funding do not feature. The Life Chances Fund does nearly the exact opposite by delegating substantial discretion to local actors. In setting up the Fund, DCMS provided very general guidelines around priority service cohorts and outcome definitions by identifying thematic policy areas and stipulating that bidders must evidence how cost savings accrue. In the absence of greater specification centrally, local actors were given the discretion to identify and prioritise service cohorts and viable interventions in addition to contractualising outcomes capable of accruing savings to local and central governments. Local governments are likewise left to procure and contract their projects as well as validate outcomes achievement through whatever means they see fit.

Neither the Innovation Fund nor the Life Chances Fund prescribe intervention models nor referral pathways, allowing projects to determine their mechanisms for connecting individuals to contracted services. In the Innovation Fund, the logic of the rate card presumes progression from improved behaviour to further qualifications and employment, but in practice projects were paid for any mix of outcomes subject only to an individual cap on total outcomes payments (DWP, 2012, p. 15). In the Life Chances Fund, these particularities are instead negotiated on a project-by-project basis, with deviations from submitted project plans addressed through discussion with TCLF, DCMS, and project partners. Where a project undertakes a major amendment, there is a formal approval process, but limited information is available publicly on the nature of these changes. While project performance data is being released on Life Chances Fund projects, wide variation in the definitions of payable outcomes prevents comparative analysis across projects like that undertaken on projects in the Innovation Fund. External evaluation does not feature in the payment mechanisms of Innovation Fund nor Life Chances Fund projects. Instead, payment is based on the submission of predetermined administrative data by local actors that is further scrutinised by the DWP directly or by TNLCF on behalf of DCMS (see Table 8).

Table 8Comparing the Innovation Fund and the Life Chances Fund

The Innovation Fund somewhat reduced capacity requirements on local actors by specifying the rate card and eligibility criteria. While local actors still assume responsibility for preparing bid documents and fulfilling requirements set by central government during delivery, for example project monitoring, the complexities of identifying and prioritising a service cohort and payable outcomes as well as negotiating who pays for those outcomes locally is not required of projects. The Life Chances Fund increases capacity requirements for local actors as they are left to specify and calibrate SOCs in accordance with the policy objectives of central government as well as engage with a more complex stakeholder network, including other project partners – fellow outcomes payors, providers, intermediaries, and investors – as well as the delivery partnership of the Fund – DCMS, GO Lab, TNLCF, and Traverse. Affiliative network maps (see Figures 1 and 2) visualise the contractual relationships galvanised by each outcomes fund. Funded SOC projects are indicated by blue circles which are scaled according to the financial size. Lines represent membership in projects and member organisations are represented by circles colour coded according to their function: pink circles indicate outcomes payors, yellow circles indicate service providers, green circles indicate investors, and teal circles indicate intermediary organisations. Member circles are scaled according to the number of projects in which they participate, hence the pink circle in the centre of each network represents central government – DWP in the Innovation Fund and DCMS in the Life Chances Fund. The result of granting greater discretion to local actors to design projects and bring in additional outcomes payors is a larger and denser network in the Life Chances Fund. For DCMS, this means needing to manage relationships and provide oversight to a greater number of projects and project partners to ensure that the fund-level collaboration makes progress towards their overarching fund-level objectives.

Figure 1

DWP Innovation Fund network.

(INDIGO, 2023).

Figure 2

DCMS Life Chances Fund network.

(INDIGO, 2023).

In terms of delivering against stated policy objectives (as in Table 9), the picture is somewhat mixed. Innovation Fund did deliver support to young people, test the evidence base for social investment and its ability to generate cashable savings, and helped to develop the social investment market. For longer-term objectives, however, the Fund does not deliver. Employment opportunities for participating young people did not improve, and while the fund did test whether social investment generated savings and improved outcomes, the results were not favourable: the benefits of social investment were not outweighed by the costs involved in designing and managing Innovation Fund projects according to the impact evaluation (Reference Salis, Wishart and McKaySalis, Wishart and McKay, 2018).

Table 9Assessment of policy objective achievement in the Innovation Fund

Interim qualitative evaluation of the Innovation Fund highlighted that most projects experienced delays in the initial stages of implementation, reducing the number of referrals and intervention starters, and consequently resulting in a remodelling and re-profiling of targeted outcomes. With this remodelling, initial intervention differences between projects diminished, resulting in a more uniform focus on younger age groups, on working within schools, and offering more time-limited interventions. Thus, projects identified as performing the ‘best’ in the early stages of the fund were those that targeted pre-NEET young people through schools, included a high number of intermediate or shorter-term outcomes, had a rolling and sufficiently large intake of referrals, and providing differentiated but time-limited support to young people (Reference Griffiths, Thomas and PembertonGriffiths, Thomas and Pemberton, 2016).

The final qualitative evaluation of the Innovation Fund showed that all parties perceived the projects to ‘have been a great success, with targeted numbers of outcomes met or exceeded’ and most agreed that ‘projects had achieved better results than they would have done if commissioned using more traditional methods’ (Reference Griffiths, Thomas and PembertonGriffiths et al., 2016; Reference Thomas, Griffiths and PembertonThomas et al., 2016, p. 1). Participating young people described experiencing ‘changes in their attitudes and approach to issues in their lives; improvements in social and familial relationships; and a broadening of their employment and career horizons’ (Reference Thomas, Griffiths and PembertonThomas et al., 2016, p. 3). The final quantitative evaluation – executed solely to generate evidence rather than trigger payment – was not so positive (Reference Salis, Wishart and McKaySalis, Wishart and McKay, 2018; Reference De Pieri, Chiodo and GerliDe Pieri, Chiodo and Gerli, 2022). Findings of the quasi-experimental impact evaluation showed that Innovation Fund participants aged fourteen to eighteen were less likely to be in education and employment than those in the comparator group, while more were in training; that fourteen- to fifteen-year-old participants were less likely to achieve NQF level 2 and 3 qualifications than young people in the comparator group; and that fourteen- to fifteen-year-old participants were more likely to be truant or experience school exclusion. Overall, the Fund was not shown to achieve value-for-money as many of the outcomes would have been achieved regardless (Reference Salis, Wishart and McKaySalis et al., 2018). As ‘projects realised that projected numbers of outcomes per young person would be lower than anticipated’, they increased recruitment, with the ‘numbers of discreet outcomes achieved per young person’ often being ‘quite low’. The time frame of the programme also meant that longer-term employment and education outcomes were all but abandoned by some projects (Griffiths, Thomas and Pemberton, 2016, p. 40). The outcomes specification choices set out by DWP meant that projects could overrefer easier-to-treat individuals into support services and then generate payment by overdelivering on earlier-term output measures at the expense of longer-term outcomes (Reference FitzGerald, Tan, Carter and AiroldiFitzGerald et al., 2023). Recent analysis from across the Innovation Fund shows that outcomes payments in eight of the ten funded projects hit their maximum contracted value with returns paid to investors.

For the Life Chances Fund, the full picture of performance is not yet known as some projects are contracted to pay for outcomes into 2026 (see Table 10). The Covid-19 pandemic also created substantial complications for projects, forcing some to deviate from their pre-specified outcomes, others to completely change their method and scope of service delivery, some to delay their launch, and a small number to terminate (Reference FitzGerald, Rosenbach and HameedFitzGerald, Hameed et al., 2021). While support is being offered to service users, a detailed account of how well each funded project performs against its initial and renegotiated payable outcomes will be required to comment on whether the Fund has supported individuals to lead happy and productive lives. The lack of standardised outcome measures as in the Innovation Fund rate card or minimum required evaluation approaches embedded into project payment mechanisms likewise means that assessing overall fund performance will remain challenging. While projects are delivering support to individuals throughout England, the degree to which that support will lead to durable improved outcomes will be challenging to assess even once final outcomes payments have been made.

Table 10Assessment of policy objective achievement in the Life Chances Fund

5.1 Contracting Responsibility

On a public management level, it may be tempting to think of OBC as an opportunity to set outcomes, find a contractor or a team of contractors, agree on a price, and let folks ‘get on with it’. This may be even more tempting if the agency adopting such a ‘set-and-forget’ model has limited capacity to perform the management that might be required in more traditional contracting. But there is little evidence to suggest that OBCs require less capacity than other contracts to manage. On the contrary, the inclusion of wider policy outcomes in contracts and management approaches likely requires more capacity. Outcomes take time to set and may need careful revision during delivery. This is especially the case for high-powered incentive contracts like SOCs that require significantly more time to procure and attention to manage than other types of contracts (Reference FitzGerald, Carter, Dixon and AiroldiFitzGerald et al., 2019). Simultaneously, the task of public procurement is increasingly a more complex strategic function for government as it is seen to be an important lever for achieving public policy goals with a wide range of economic, environmental, and social outcomes being included in public contracts. This, combined with the realities of getting public contracts to deliver in increasingly networked and dynamic social programme environments, likely means that more involvement of procurement professionals is needed during contract performance.

In the US, there has been both a push towards performance incentives and a realisation of the importance of capacity in procurement. In the US, Congress recently established the independent Advisory Panel on Streamlining and Codifying Acquisition Regulations (the Section 809 Panel), which highlighted that the ‘DoD’s acquisition workforce is the lynchpin to achieving successful acquisition reform’ and made recommendations focusing on the hiring, training, development, and retention of the acquisition workforce, precisely those public managers who are responsible for procurement and contract management (Section 809 Panel, 2019, p. 15). In the UK, there has been reduction in public procurement staff in the public sector overall, but an increase in the staff in Crown Commercial Services (CCS). This serves to underscore the effect of hollowing out procurement and contracting capacity particularly in UK local governments.

In the EU, the European Commission has a ‘Public Procurement Action Plan’ that includes a 2016 ‘stock-taking study’ on member state’s administrative capacity in public procurement. This study articulated four areas of administrative capacity: ‘human resources dedicated to procurement, training and capacity building structures that ensure the proper qualification of procurement practitioners, trainings offered to procurement practitioners and economic operators, and existing systems and tools aimed at improving the way procurements are handled’ (European Commission, 2016). The study found low levels of participation in skills trainings on topics such as green public procurement and social public procurement, with the cost or lack of funding being the greatest barrier to attendance.

From an oversight and monitoring perspective, beyond personnel bandwidth, the system in place for capturing and tracking contract performance and delivery of outcomes as enforceable commitments remains underengineered, particularly in the UK. Ongoing performance data for OBCs to guide day-to-day operations is often held by project managers rather than civil servants and can differ from reported key performance indicators – and indeed outcomes – across projects. As it relates to social value, the transparency notices that are required under EU directives and current UK regulations are designed to describe the core requirements of a procurement, but do not capture horizonal or collateral requirements. There is no systematic reporting or comprehensive public data on social value priorities, requirements, contracted commitments, or implementation. Without an effort to capture and publish the achievement of social value clauses, we will have no way of knowing whether the specifications and calibrations in contracts relate to the successful delivery of social outcomes.

5.2 Contracting Liability

There is also the risk that contracting authorities may outsource outcomes to avoid directly making decisions or performing activities that subject them to being accountable to democratic representatives or are reviewable by courts at the request of service users and other members of the public. In other words, authorities may view outcomes as a way to contract liability. Public authorities have duties related to public services, including those services that have been contracted out. This is a matter of concern in individual situations but is also as a wider constitutional issue. As explained by Davies: ‘Public Law is not just concerned with the outcomes of cases. It is also concerned with the allocation of public powers and duties. This reflects its role in ‘constituting’ government. Contractualisation gives rise to difficulties in this regard because public powers or duties which are allocated to the government by statute may be exercised or performed by contractors’ (Reference DaviesDavies, 2008).

In the UK, public authorities have a wide range of legal duties. A guide to lawful decision-making for UK local authorities describes duties to declare interests, follow correct procedures, engage in consultations, stay within remit, be rational and evidence-based, include all relevant considerations, act with proper purpose, comply with the European Convention of Human Rights, be proportionate, and properly reasoned (Smith and PracticalLawPublicSector, 2022). However, it is not always clear whether an entity is a public authority exercising a public function giving rise to public duties.

In the 2003 Aston Cantlow case, the House of Lords (the highest court in UK at that time) was considering ‘publicness’ under the Human Rights Act and the European Convention of Human Rights. It emphasised that there was ‘no single test of universal application’ and provided some factors to be considered when assessing when public duties arose: ‘the extent to which in carrying out the relevant function the body is publicly funded or is exercising statutory powers, or is taking the place of central government or local authorities, or is providing a public service’ (Lord Nicholls of Birkenhead in Aston Cantlow and Wilmcote with Billesley Parochial Church Council v Wallbank [2003] UKHL 37).

However, even when it established that a contracting authority has a public duty, it is not aways the case in the UK that a contractor performing the service under a public contract will also have the duty. Duties do not automatically extend to contractors. Their extension depends on factors laid out by Court of Appeal in the Donoghue case (regarding homelessness), applied again by Court of Appeal in Leonard Cheshire (regarding elderly care, where there was no public duty applied to the contractor). Both these cases were cited favourably by the House of Lords in Aston Cantlow.

In the Donoghue case, Donoghue argued that a housing association, Poplar, had a particular duty because Poplar was a contractor to a public authority, Tower Hamlets council. The Court of Appeal found that Polar did have the duty. The Court of Appeal also stated:

The reasoning here has been criticised. Craig has argued that ‘rights-based protections should not depend on the method of service delivery. … It is difficult to see why the nature of a function should alter if it is contracted out, rather than being performed in house. If it is a public function when undertaken in house, it should be equally so when contracted out’ (Reference CraigCraig, 2002). Davies has suggested that ‘any gap in the availability of duties or remedies is particularly concerning because it gives rise to inequality in the treatment of different claimants depending on the arrangements a public authority has made for service delivery’ (Reference DaviesDavies, 2008, p. 233). In circumstances where wider public policy goals are included as outcomes in public contracts, perhaps the performance of those contracts is less of a private matter between the contracting authority and the contractor. In the UK, this will likely be very fact-specific in any individual case – despite any wider constitutional concerns.

5.3 Inherently governmental

In 2018, UK construction and services giant Carillion collapsed under £1.3 billion of debt (Reference MorMor, 2018). At the time of its collapse, Carillion was contracted to deliver a wide range of services to the Ministry of Defence, the Ministry of Justice, major public transportation systems, hospitals, local councils, and schools. In the aftermath of its collapse, the House of Commons Public Administration and Constitutional Affairs Committee asked three key questions (2018): (i) how appropriate is it for particular public sector projects or services to be run by the private sector?; (ii) is the government just the customer or does it have wider responsibilities as the steward of these markets?; and (iii) what capability does the government still lack in letting and managing contracts?

The Committee report did not arrive at a clear answer to on what should remain within government and what should be contracted for:

However, the Committee was very conscious of the government’s role as superior holder of risk and was very concerned about whether contractors should take on risks that should remain with the government. The Committee was especially concerned about contract models that tie payment to outcomes:

The US federal government is prohibited from using contracts to perform ‘inherently government functions’, which it defines as ‘a function that is so intimately related to the public interest as to mandate performance by government employees’ (FAR 7.5). The FAR goes on to underscore that ‘this definition is a policy determination, not a legal determination’, whereby inherently governmental functions include ‘the exercise of discretion in applying Government authority’ or the ‘act of governing’, and ‘the making of value judgements in making decisions for the Government’ as in monetary transactions and entitlements (FAR Part 2).

A 2011 White House policy letter highlights the management and capacity issues related to inherently governmental functions, requiring agencies to ‘take special care to retain sufficient management oversight over how contractors are used to support government operations and ensure that Federal employees have the technical skills and expertise needed to maintain control of the agency mission and operations’ (OMB, 2011). The same policy letter also highlights management and capacity issues related to contact performance of functions that are closely related to inherently governmental functions, are critical functions, or ‘where, due to the nature of the contract services provided, there is a potential for confusion as to whether work is being performed by government employees or contractors’ (OMB, 2011). In these circumstances, the policy letter states: ‘Contract management should be appropriate to the nature of the contract, ensure that government officials are performing oversight at all times, and make clear to other government organizations or to the public when citizens are receiving service from contractors’ (OMB, 2011).

We maintain that identifying what is inherently governmental or deciding where to retain democratically legitimated decision-making procedures, accountability mechanisms, and safeguards is not straightforward, especially when contracting for outcomes. As we have detailed throughout this Element, the emphasis of applied public administration and public policy scholarship tends to be on estimating the efficiency and performance of contracting out. A problem with these kinds of analyses is that in any individual scenario before a public manager, the procedures, accountability mechanisms, and safeguards we value in a democratic society look like costs. Such economic arguments are limited in that they conceive of public good as an aggregation of private interest (Reference MazzucatoMazzucato, 2023) rather than recognising the unique ability the state to deliver public value. Hence, the benefits of oversight functions are best viewed with an orientation that understands that the continued legitimacy of civil servants and government action is inexplicably tied to their ability to account for decisions in policy design and implementation (Reference StoneStone, 1983).

The law cannot provide us with a list of inherently governmental functions or lists of services where we want or do not want democratically informed decision-making procedures, accountability mechanisms, and safeguards. Likewise, managerial sciences and applied economics cannot fully calculate the costs and benefits of including such oversight and safeguards. Hence, the big challenge of linking policy designs to implementation via outcomes-based contracts is the risk that public managers set outcomes as a way of circumventing meaningful government presence during service delivery or assume that an illusory ‘perfect contract’ will make services self-implementing and outcomes automatically achievable.