NCPA - National Center for Policy Analysis


March 25, 2005

Municipalities provide a range of expensive services, often without knowing whether they are receiving full value for the public money they spend. Yet, at a time when municipal governments are struggling to make ends meet and to provide acceptable levels of services, the status quo in services provision is no longer an option. Municipal governments need to ascertain whether the cost of a service is justified, and then seek to provide that service at the most efficient price, says the Atlantic Institute for Market Studies (AIMS).

One way of providing services more efficiently and at lower cost would be to make them "contestable" -- that is, to open up the bidding on services contracts to all interested providers, whether public, private, or a combination of the two (unlike "privatization," which simply transfers the ownership of public assets into private hands).

  • Contestability would allow municipalities to compare the costs of producing services in-house and of producing them in other ways.
  • Armed with such information, municipal governments would perform better and provide better value for taxpayers as consumers -- in short, they would achieve what is often referred to as "high-performance government."

Adding contestability to the provision of municipal services would require five essential steps, says AIMS:

  • Identifying whether the service needs to be provided at all, and if it does, whether it needs to be provided by government.
  • Accurately specifying all the elements of providing the service as well as their true costs.
  • Receiving properly priced offers from each bidder, inclusive of all true costs.
  • Selecting the option that provides the best value.
  • Monitoring the contract after the best bidder has been chosen to ensure that the service is satisfactorily provided.

Source: Andrea Mrozek and Don McIver, "Contestability: The Uncontested Champion of High-Performance Government," AIMS Urban Future Series: Paper #5, Atlantic Institute for Market Studies, February 2005.


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