Introduction

Over the past two decades governments all around the world have been contracting out services as a key part of public sector reforms. Their objectives initially focused on simple cost-savings, but with experience, broadened to include access to better services and an enhanced capacity for managers to focus on the ‘core business’ of their organizations.

Empirical evidence on the effectiveness of contracting-out services such as refuse collection and cleaning in local government has been widely evaluated, but there is a scarcity of analysis with others. Notwithstanding this, it has almost become an article of faith that outsourcing government services saves resources and improves service quality. But what does the empirical evidence tell us about the outsourcing of major government information technology (IT) services?

This chapter looks firstly at the policy promises made when outsourcing IT services, and reviews the range of global evidence to date on the effectiveness of this technique in the context of the broader outsourcing debate. It then looks in detail at the outcomes of an $AUD1.5 billion outsourcing exercise undertaken by the Australian Federal Government. The empirical analysis of the exercise is contrasted with the political promises made and reasons why savings projections of 15 per cent were not achieved are explored. Finally, the chapter discusses a series of general lessons on the outsourcing of IT in the context of third-way governments increasingly intent on adopting private means for providing public sector services and infrastructure.