Why Do Governments Contract with Other Governments?

Local governments traditionally produce public services by using their own employees. Some public service reform proposals have emphasized privatization and contracting out in order to improve efficiency and effectiveness of public services. Local governments have principally contracted with private companies to deliver public services, however some have looked to other governments as a service provider. Some municipalities build partnerships with other governments to produce particular services. Conversely, some local governments have decided to become service providers for other governments in producing specific services. Although police, fire protection, and EMS have most often been contracted to other governments, intergovernmental contracting gradually has been expanded to other services. Some governments prefer public entities as a service provider to private companies in delivering specific services. Existing research has paid mostly attention to the characteristics of governments that purchase particular services. Although several studies focus on contractual relationships between governments, there are few studies that examine why some local governments become providers of public services to other governments. The purpose of this study is twofold. First, it is to identify the characteristics of governments that choose to purchase from other governments. Second, it clarifies why some municipalities decide to become providers of services to other governments. This study employs mixed method analyses. Multinomial logistic regression analysis, form of a quantitative analysis, identifies some characteristics that are associated with governments' decisions to purchase particular services from other governments. Qualitative analysis in the form of in-depth interviews, were conducted with officials in seven cities to clarify why some local governments decide to provide particular services to other governments. Results show that economic, political, and organizational factors influence the decisions to contract services out to other governments. Interview results reveal that costs, production capacity, innovative ideas, new revenue sources, proximity, and economies of scale are important in understanding why some local governments choose to be service providers for other governments.