The Economics of Compulsory Competitive Tendering: Issues, Evidence and the Case of Municipal Refuse Collection
| DOI | 10.1177/095207679300800203 |
| Author | Matthew Uttley,David Chaundy |
| Published date | 01 June 1993 |
| Date | 01 June 1993 |
| Subject Matter | Articles |
25
The
Economics
of
Compulsory
Competitive
Tendering:
Issues,
Evidence
and
the
Case
of
Municipal
Refuse
Collection
David
Chaundy
and
Matthew
Uttley
Centre for
Defence
Economics
University
of
York
This
work
was
directed
by
Professor
Keith
Hartley
with
project
funding
from
the
E.S.R.C.
(Project
R000232464).
The
usual
disclaimers
apply.
Introduction
Since
1979,
a
central
feature
of
the
Conservative
Government’s
approach
to
local
authority
service
provision
has
been
the
introduction
of
competition.
This
policy
was
formalised
through
compulsory
competitive
tendering
(CCT)
introduced
in
1980:
mandatory
legislation
requiring
councils
to
subject
defined
activities
traditionally
supplied
in-house
to
periodic
rivalry
from
external
organisations.
From
the
outset,
CCT
has
generated
a
politicised
debate
and
the
major
political
parties
remain
fundamentally
divided:
the
Labour
Party
is
committed
to
its
abolition
(Labour
Party,
1992);
the
Conservative
Government
to
its
extension
to
a
wider
range
of
municipal
services
(Treasury,
1991).
,
This
article
evaluates
the
economic
performance
of
CCT.
The
first
section
sets
out
the
evolution
and
political
background
to
existing
and
planned
legislation.
The
second
section
evaluates
the
various
claims
and
counter-claims
in
the
CCT
debate.
The
third
section,
introducing
new
survey
data,
critically
assesses
the
empirical
evidence
on
competitive
tendering
as
a
procurement
strategy
for
municipal
refuse
collection
services.
The
final
section
presents
the
primary
conclusions,
and
raises
wider
policy
issues
surrounding
CCT
for
municipal
services.
Policy
Background
Local
authorities
have
always
relied
on
private and
voluntary
organisations
to
provide
goods
and
services.
Before
1979,
however,
the
majority
of
authorities’
26
functions
were
provided
by
direct
service
organisations
(DSOs):
in-house
units
organised
according
to
function
(for
example
refuse
collection
or
catering).
The
dominant
political
ethos
that
public
sector
organisations
were
the
most
&dquo;effective&dquo;
form
of
provision
meant
DSOs
were
immune
from
private
sector
competition.
Throughout
the
1980s :-
&dquo;Legislation
on
compulsory
competitive
tendering
arose, ...
because
of
the
failure
of
most
local
authorities
to
react
to
what
the
Government
saw
as
overwhelming
evidence
of
efficiency
gains
from
competition&dquo;
(Parker,
1990,
p.
654).
The
Conservative
Government
entered
office
in
1979
with
declared
policies
of
increasing
public
sector
efficiency,
reducing
trade
union
influence
and
expanding
the
role
of
private
firms
(Key,
1988).
Early
reform
was
introduced
with
the
1980
Local
Government
Planning
and
Land
Act
which
required
authorities
to
tender
buildings,
highway
and
maintenance
work.
Political
impetus
for
further
rounds
of
compulsory
competitive
tendering
legislation
was
reinforced
by
evidence
from
the
Ministry
of
Defence
and
the
NHS
where
contracting-out
demonstrated
cost
savings
(Uttley,
1993;
Whitbread
and
Hooper,
1992).
Voluntarily,
a
number
of
Conservative-controlled
councils,
notably
Wandsworth
and
Southend-on-Sea,
extended
competitive
tendering
to
services
beyond
those
specified
in
the
1980
Act
and
demonstrated
significant
economies
(see
Ascher,
1987).
Despite
these
findings,
however,
the
majority
of
authorities -
over
90
per
cent
of
the
456
councils
in
England
and
Wales -
were
reluctant
to
extend
competitive
tendering
on
a
voluntary
basis
(Department
of
the
Environment,
1985).
Reluctance
was
based
primarily
on
the
threat
of
trade
unions
industrial
action
and
the
Labour
Party’s
declared
opposition
to
the
policy.
Consequently,
three
factors -
central
government
policy
objectives,
demonstrable
efficiency
gains
and
the
unwillingness
of
authorities
to
extend
CCT
unilaterally -
were
precursors
to
further
mandatory
legislation
through
the
1988
Local
Government
Act.
(Figure
1)
Figure
1:
Activities
affected
by
current
compulsory
competitive
tendering
legislation
, The
scope
and
provisions
of
the
1988
Act
(Figure
2)
reflect
the
political
environment
surrounding
its
implementation.
As
well
as
defining
the
services
to
be
tendered,
clear
stipulations
are
incorporated
to
prevent
’anti-competitive’
authority
practices:
actions
favouring
DSO
bids
&dquo;having
the
effect
or
intended
or
likely
to
have
the
effect
of
restricting,
distorting
or
preventing
competition&dquo;
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