Managing the Risks of an Outsourced Public Service Function

The pressure to deliver more for less has steered public managers´ focus towards risk mitigation, especially in relation to delivering health services which is one of the most significant items of public expenditure. The... [ view full abstract ]

The pressure to deliver more for less has steered public managers´ focus towards risk mitigation, especially in relation to delivering health services which is one of the most significant items of public expenditure. The financial significance of health services has led to a search for means to improve efficiency and care quality. One common way of increasing efficiency and quality has been by separating the purchaser form the provider in public organization, ie. outsourcing. Despite the popularity of outsourcing, whether there is a tradeoff between increasing cost efficiency and service quality has remained unclear. This paper identifies the most significant risks related to outsourcing a public health service function and the means to mitigate these risks during the competitive tendering process, implementation phase and contract management phase. Thus risks are mapped and analyzed in two different phases i) outsourcing consideration, and, ii) the implementation phase. In the outsourcing consideration phase, the risks are mapped for the public organization´s perspective. In the implementation phase the risks are identified from both perspectives, the purchaser´s and the supplier´s. This is a single case study looking at outsourcing the primary care function in a medium-sized city in Finland. A combination of data from a survey and semi-structured interviews is analysed. Analytical Hierarchy Process is used to evaluate the risks of outsourcing options and to identify the best contract management approach. The most significant risks in the consideration phase are political, service quality and market risk. To mitigate these risks: i) the procurement unit should engage with market, ii) risk management focus should primarily be on service quality risk, and, ii) service specification and contract terms should be created through an open dialogue with the tenders in negotiated procedure. The data collection for the second phase of analysis will be conducted in 12/2016.