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Contracting Out Government Services: Service Requirements and Performance Monitoring

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Practice Advice on Program and Service Delivery 

Contracting Out Government Services: Service Requirements and Performance Monitoring (OECD) 

Summary AdviceWhen contracting out government services, it is important to clearly define expectations and put in performance monitoring mechanisms.

Main Points:  The OECD recommends to clearly define service requirements in terms of outcomes or outputs, and to monitor performance and foster cooperative relationship with the organisations that are tasked with service delivery. In particular:

  • Service requirements should be specified in terms of outcomes or outputs, not inputs. This means specifying what the activity is, now hot the activity is to be performed. Operational flexibility is essential for the contractor to be innovative in performing the activity, and thereby securing efficiency gains. These outcomes or outputs should be specified as fully as possible, and include appropriate service quality measures.
  • Consideration should be given to the applicability of incentive payments in the contract, either by structuring payments in such a way that they are contingent on the achievement of certain levels of service, or by offering bonus payments for achievement of service levels above a pre-defined baseline.

When it comes to performance and service quality, the OECD recommends that governments clearly communicate that:

  • Contracting out an activity does not diminish, in any way, the responsibility of the organisation for the performance of that service. This is especially relevant when that service is being provided to a third party.
  • The organisation should regularly and formally monitor the performance of the contractor to ensure that the performance standards stated in the contract are fulfilled. When performance information originates from the contractor, it should be audited to ensure its accuracy.
  • Although contracting out involves a formal contractual relationship, both parties need to recognise their mutual dependence and thus their mutual interest in developing a co-operative relationship rather than an adversarial relationship.
  • The contract should incorporate provisions regarding contractor non-performance, dispute resolution mechanisms and the smooth hand-over of the activity to another contractor.

 Source: OECD (1997). OECD, “Best Practice Guidelines For Contracting Out Government Services",  Public Management Services, PUMA Policy Brief, OECD Publishing at: http://www.oecd.org/gov/budgeting/1901785.pdf . Last accessed February 28th, 2013.

Page Created By: Khilola B. Zakhidova. The content presented on this page is drawn directly from the source(s) cited above, and consists of direct quotations or close paraphrases. This material does not necessarily reflect the official view of the publishing organization.

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