Strategies for Avoiding the Pitfalls of Performance Contracting

C ontracting out is in. All sorts of governments are contracting for all sorts of goods and services. The public sector contracts with the private and nonprofit sectors for the design, construction, and maintenance of roads and bridges (Chi, 1993, pp. 14-15); for the production of nuclear weapons (Kettl, 1993, chap. 6); for the management of prisons and the delivery of services within prisons (Allen, 1989); for information technology (Globerman & Vining, 1996); for the management of public schools (U.S. General Accounting Office, 1996b); for educating, training, and placing in jobs welfare recipients and displaced workers (Chi & Devlin, 1989); for child support enforcement (U.S. General Accounting Office, 1995, 1996a); and for a host of other social services (Smith & Lipsky, 1993, pp. 3-1 1). Eighty percent of the largest cities in the United States contract out vehicle towing, and half contract out solid waste collection (Dilger, Moffett, & Struyk, 1997). Over the past several decades, as society has debated government's make-or-buy decision, public agencies have shifted more toward the buy alternative-toward privatization and what Richard Nathan (1997) calls "nonprofitization" (p. 4).' Government contracting, however, is not new. It has been going on for centuries. The government does not think of making pencils. It buys them.2 As Donald Kettl (1993) observes, the American government had defense contracts before it had a constitution. Indeed, he also notes, in government, "almost everything can be-and has been-contracted out" (pp. 6, 157). Thus, scholars, journalists, and practitioners have written numerous articles, chapters, and books that explain why government should contract out (Butler, 1985; Savas, 1982), when it should contract out (Donahue, 1989; Prager & Desai, 1996), and how it