Government capacity to contract: health sector experience and lessons
| Author | Anne Mills,Sara Bennett |
| DOI | http://doi.org/10.1002/(SICI)1099-162X(1998100)18:4<307::AID-PAD24>3.0.CO;2-D |
| Published date | 01 October 1998 |
| Date | 01 October 1998 |
Government capacity to contract:
health sector experience and lessons
SARA BENNETT* and ANNE MILLS
Health Economics and Financing Programme, London School of Hygiene and Tropical Medicine, UK
SUMMARY
Using case-study material of contracting for clinical and ancillary services in the health care
sector of developing countries, this article examines the capacities required for successful
contracting and the main constraints which developing country governments face in develop-
ing and implementing contractual arrangements. Required capacities dier according to the
type of service being contracted and the nature of the contractor. Contracting for clinical as
opposed to ancillary services poses considerably greater challenges in terms of the information
required for monitoring and contract design. Yet, in some of the case-studies examined,
problems arose owing to government's limited capacity to perform even very basic functions
such as paying contractors in a timely manner and keeping records of contracts negotiated.
The external environment within which contracting takes place is also critical; in particular,
the case-studies indicate that contracts embedded in slow-moving, rule-ridden bureaucracies
will face substantial constraints to successful implementation. The article suggests that
governments need to assess required capacities on a service-by-service basis. For any successful
contracting, basic administrative systems must be functioning. In addition, there should be
development of guidelines for contracting, clear lines of communication between all agents
involved in the contracting process, and regular evaluations of contractual arrangements.
Finally, in cases where government has weak capacity,direct service provision may be a lower-
risk delivery strategy. #1998 John Wiley & Sons, Ltd.
INTRODUCTION
After a decade where there has been a focus on ways of reducing the role of govern-
ment in the economy, there is now recognition that a smaller role for government in
the direct provision of services may mean a bigger role for government in policy
development, co-ordination and regulation. Attention has turned to the question of
how to ensure a capable government able to perform these core roles. The 1997 World
Development Report focuses upon these very issues: what role the state should play
and what measures need to be taken to ensure that it performs these roles well (World
Bank, 1997).
One of the central strategies for removing government from the `coal-face' of
service delivery has been the contracting-out of services. Contracting-out has been
CCC 0271±2075/98/040307± 20$17.50
#1998 John Wiley & Sons, Ltd.
PUBLIC ADMINISTRATION AND DEVELOPMENT
Public Admin. Dev. 18, 307±326 (1998)
*Correspondence to: S. Bennett, 2316 39th Street NW, Washington, DC 20007, USA. e-mail:
sara_bennett@abtassoc.com
Contract grant sponsor: UK Department of International Development
used in both developed and developing countries as a means to enhance eciency and
generate a clearer speci®cation of services whilst leaving ultimate control in the hands
of government. Contracting-out has been used in sectors as diverse as social services,
health care, housing and prisons. Contracting-out is not an entirely new pheno-
menon. Most countries have central tender boards which have long been responsible
for drawing up contracts with private sector suppliers, covering services such as
construction, maintenance and equipment supply. However, new approaches to
public management are pushing contracting into areas where it was previously largely
unknown and also placing responsibilities for contracting upon agents who have had
very little prior experience in this ®eld. The World Bank is doubtful about the
capacity of developing country governments to contract-out complex services such as
health care:
`It takes considerable capability and commitment to write and enforce
contracts, especially for dicult-to-specify outputs in the social services'
(World Bank, 1997, p. 87).
This article integrates the literature on institutional capacity with a set of case-
studies of health sector contracting to explore issues relating to government capacity
to contract-out clinical and related ancillary services in developing co untries. The
article has three main aims:
.to clarify what is meant by the term `capacity' and which sorts of capacity are key in
contracting-out arrangements;
.to identify the main constraints on developing country government capacity with
respect to contracting-out of health care services;
.to consider which measures and strategies might help increase government capacity
to contract-out successfully and whether circumstances exist where government
capacity is so limited that contracting-out is neither feasible nor desirable.
Contracting for health care services represents a particularly interesting case to
examine in relation to capacity because of the range of services included. In part-
icular, within the health care sector there is substantial variation in three particular
characteristics which are likely to aect the ease of contracting-out. These three key
characteristics are (Williamson, 1987):
.the ease with which the service can be speci®ed in advanceÐfor many clinical
contracts it is dicult to specify fully exactly what services the contractor need
provide;
.the degree of asset speci®cityÐif there is no or limited asset speci®city, then even if
the service required cannot be fully speci®ed in advance, the problems of
incomplete contract speci®cation may be alleviated, as contractors with guile may
not cut corners for fear of losing the contract next time around;
.the ease of gathering information about performance and hence monitoring con-
tractor performanceÐfor some clinical services it is dicult to judge the quality of
contractor performance even retrospectively, so under such circumstances even the
threat of the contract being awardedto another contractor upon renewal is unlikely
to be eective.
Services exhibiting dierent combinations of these characteristics will require dierent
approaches to contracting. For example, where it is not possible to monitor provider
308 S. Bennett and A. Mills
#1998 John Wiley & Sons, Ltd. Public Admin. Dev. 18, 307±326 (1998)
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