Problems with contracting out government services: lessons from orderly services at SCGH

Abstract

This paper identifies and discusses the problems associated with contracting out labor-intensive government services. It examines in detail the contracting out of the orderly service at Sir Charles Gairdner Hospital (SCGH) in Western Australia and its subsequent return to in-house delivery. When the orderly service was contracted out, the result was poor in terms of cost, quality and externalities. Subsequent return of the service to in-house provision reduced costs and improved quality. The problems that led to failure of contracting out and subsequent success of in-house provision can be explained in terms of transaction cost economics.