Efficiencies of and Motivations for Contracting Out in the Public Sector: The Case of Social Services in Spain

Public Administration, 2024; 0:1–14 https://doi.org/10.1111/padm.13047 1 of 14 Public Administration SPECIAL ISSUE ARTICLE OPEN ACCESS Efficiencies of and Motivations for Contracting Out in the Public Sector: The Case of Social Services in Spain DannyChow1 | JuanCarlosGarridoRodríguez2 | JoséLuisZafraGómez2 1School of Business, Maynooth University, Maynooth, Ireland | 2Department of Accounting and Finance, University of Granada, Granada, Spain Correspondence: Juan Carlos GarridoRodríguez ([email protected]) Received: 26 December 2023 | Revised: 17 October 2024 | Accepted: 12 November 2024 Funding: This work was supported by Ministerio de Ciencia e Innovación, PID2021128713OBI00 and University of Granada. Keywords: effective cost| efficiency| motivations| outsourcing| social services Palabras Clave: coste efectivo| eficiencia| externalización| motivaciones| servicios sociales ABSTRACT Debates on contracting out to the private sector is primarily focused on the cost efficiency of its provision, drawing on experiences with hard or technical services such as waste and water management. This paper focuses on a growing interest in the role and impact of sourcing decisions in softer or more humancentered services, such as social services, where sourcing decisions are more complex or multifaceted. Using actual cost data obtained from open access government sources on social services in Spain, the first objective was to compare the cost efficiencies of different sourcing decisions using estimations of Technology Gap Ratios of different municipalities through OrderM Panel Data. The second objective analyzed motivations for contracting out through a survey of municipal managers in Andalusia using principal components analysis combined with multinominal logit regressions. Our findings suggest that while contracting out to the private sector is, relatively speaking, the most cost efficient, most municipalities have decided to keep service provision inhouse. Decisions to contract out social services are not based only on cost but also incorporate a range of other considerations such as the municipalities' population size, its stakeholder expectations, and other complexities associated with service provision. Resumen Los debates sobre la contratación externa en el sector privado se centran principalmente en la rentabilidad de su prestación, a raíz de experiencias con servicios duros o técnicos como la gestión de residuos y del agua. Este artículo se centra en el creciente interés por el papel y el impacto de las decisiones de externalización en servicios más blandos o centrados en el ser humano, como los servicios sociales, en los que las decisiones de externalización son más complejas o polifacéticas. Utilizando datos de costes reales, obtenidos de fuentes gubernamentales de libre acceso sobre los servicios sociales en España, el primer objetivo consiste en comparar las eficiencias en costes de diferentes formas de gestión, a través de los Technology Gap Ratio de diferentes municipios, obtenidos mediante un análisis de OrdenM con datos de Panel. El segundo objetivo analiza las motivaciones para la contratación externa a través de una encuesta a gestores municipales en Andalucía, utilizando el análisis de componentes principales combinado con regresiones logit multinomial. Nuestros resultados sugieren que, aunque la contratación externa con el sector privado es, en términos relativos, la más eficiente en términos de costes, la mayoría de los municipios han decidido mantener la prestación de servicios dentro de la empresa. La decisión de externalizar servicios sociales no se basa únicamente en el coste, sino que también incorpora otras consideraciones, como el tamaño de la población del municipio, las expectativas de las partes interesadas y otras complejidades asociadas a la prestación de servicios. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes. © 2024 The Author(s). Public Administration published by John Wiley & Sons Ltd. 2 of 14 Public Administration, 2024 1 | Introduction The decision to outsource or contract out to the private sector is one the most significant considerations facing governments in their efforts to streamline public services (Pollitt and Bouckaert2017). The issue is notable because the way in which services are organized have a bearing on the cost efficiency of its provision. Sourcing decisions, which considers alternatives to direct (inhouse) provision of public services (Hefetz and Warner2012), has become a core consideration for government policy makers (Bel and Fageda2007; Bel and Warner2016; PérezLópez etal.2016; PérezLópez, Prior, and ZafraGómez2018; Lindholst etal.2018). Outsourcing service provision was initially seen as a way in which to reduce costs and increase efficiency when compared with inhouse delivery (Savas 2000; Osborne and Gaebler1992). Variants of private sector involvement in the decision to contract out have been developed, such as commissioning external agencies and corporatization (Bel and Warner 2016; Aldag, Warner, and Bel 2020; Alonso and Andrews2020). However, some authors have started to challenge the convention of contracting out to the private sector, as projected cost savings either failed to materialize (Jensen and Stonecash 2005; Bel and Gradus 2018), and/or due to other challenges faced in service delivery. These include theneedto sustain a complex ecosystem comprising of providers, public values, and community interests (Bel, Hebdon, and Warner2018). Research on alternative sourcing decisions, such as intermunicipal cooperation (IMC, broadly, the sharing of service provisions between municipalities) have shown, for instance, that wider civic objectives such as improved service quality and regional coordination can be enabling, even if the service turns outs to be less cost efficient overall (PérezLópez, Prior, and ZafraGómez2015; Aldag, Warner, and Bel2020; Warner, Aldag, and Kim2021). That said, there is little consensus in the literature on the factors that drive IMC adoption, which must contend beyond basic economic concerns to encompass the intricacies of governance structures and spatial context (Bel and Warner2016). A further consideration influencing the decision to outsource is attributable to the complexity of service provision. (Brown and Potoski(2005)) argue that governments outsource the delivery of certain services (e.g., social services) that are more complex to deliver, especially when they lack the capabilities and experience to provide them. However, the expected cost savings and/ or improved managerial performance from seeking alternative sourcing decisions to deal with complex services is not assured (Aldag, Warner, and Bel2020). Whilst there is a growing understanding of the relative cost efficiencies of different sourcing decisions for public services that are “hard” (Lamothe and Lamothe 2010) or more “technical” (Petersen, Houlberg, and Christensen2015) in function, such as waste management and water, it is less predictable for those that are more welfare oriented, such as social services (Bel and Fageda2017). Furthermore, unlike technical services, the oftenpersonalized nature of social services (i.e., elderly care, retirement/nursing homes, social assistance; youth work, childcare) provision means that it can be difficult to achieve cost efficiencies when compared with more scalable services, such as waste management and water (Aldag, Warner, and Bel2020; PlataDíaz etal.2019). These unique features make social services an interesting case to examine, leading (Hefetz and Warner(2012)) and (Bel and Fageda(2017)) to call for more research to understand how the complexity of service provision affects sourcing decisions. In their study of alternative sourcing decisions across a range of public services in New York state, (Aldag, Warner, and Bel (2020)) contrasted longitudinal data of service level costs with a survey detailing the influences on, and outcomes from, municipalities adopting alternative sourcing decisions. Their findings point to the complexities influencing sourcing decisions: for some services, cost efficiency is a main driver and outsourcing is beneficial. However, for others, cost efficiency is but one of a multitude of factors explaining the decision. In this paper, we build on (Aldag, Warner, and Bel's(2020)) findings and approach through an exploration of two key issues impacting on social services provision highlighted in the wider literature review: the relative cost efficiencies of and complexities that inform the need for alternative sourcing decisions. Two research questions are proposed: RQ1: What are the cost efficiencies of alternative sourcing decisions? RQ2: Exploring the factors that influence sourcing decisions in social services. The remainder of the paper is as follows. The next section situates the research questions through a review of the literature on the efficiencies of alternative sourcing decisions and its impacts on the complexity of social services delivery. The methodology section that follows outlines the data collection process and analytical approach taken. The final two sections analyze the findings and concludes. 2 | Sourcing Decisions and Complexities of Social Services Delivery 2.1 | Motivations for Seeking Alternative Sources of Service Delivery Key motivations for municipalities seeking alternative sourcing decisions are centered on responses to unsatisfactory experiences with outsourcing service delivery fully to the private sector (Bel, Hebdon, and Warner2018). The motivations go beyond dissatisfaction with a lack of real efficiency improvements from privatization, to also include: (i) Ideological and political influences (Feiock 2007; Alonso, Andrews, and Hodgkinson 2016; Alonso and Andrews 2020; Alonso, Clifton, and DíazFuentes2022); (ii) the need to accommodate the size of the municipality (Bel and Warner2016; PlataDíaz etal.2019); and (iii) complexities arising from geographically dispersed populations within the domain of a municipality (ZafraGómez and ChicaOlmo2019). 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 3 of 14 In a widely cited review, (Bel and Fageda (2007)) found that outsourcing to the private sector appears to be guided by pragmatic rather than ideological motivations. Bel and Fageda notes that, for smaller municipalities, economic scale is an important factor when seeking alternative arrangements. Larger municipalities benefit from having more capacity for external contracting, because their size enables them to absorb transaction costs associated with such provision (Bel and Fageda 2017). Municipalities (typically smaller ones) that enter IMC arrangements do so to benefit from jointly scaling up their operations, as shown in (Elston and Bel's(2023)) study of how municipalities in England cope with various challenges during Covid19. Despite the greater absorptive capacity afforded by IMC, however, the complexity and additional transaction costs involved in its organization can exceed its benefits. There are also other drivers of IMC arrangements not solely driven by the need for cost efficiencies and/or scale alone, such as a focus on citizenoriented and communitycentered approaches to service provision (Bel, Hebdon, and Warner2018), the need to enhance the administrative and technical capabilities of smaller municipalities, and to comply with specific governmental policy directives that forbid outsourcing (Silvestre etal.2020). The benefit(s) from seeking alternative sources of service provision to achieve the requisite scale is therefore more relevant for technical services that utilizes specialist assets and are more dependent on capital investment (Aldag, Warner, and Bel2020). In this context, IMC from forprofit contracting may generate lower transaction costs. This is due to the greater alignment of objectives between principal and agent, given that both contracting parties are themselves municipalities (ibid.). For instance, (GarridoRodríguez etal.(2018)) found that IMC is the most efficient sourcing decision for reducing the cost of assetspecific services such as waste management. Broadly speaking, studies generally find that IMC reduces costs of service delivery (Bel, Hebdon, and Warner2018). For some countries, such as Brazil, cost reductions from IMC even extend to social services (Silvestre etal.2020). However, when the cost efficiencies of both technical and “softer” (Lamothe and Lamothe2010) services such as social and cultural services are considered together, IMC generally reduces efficiencies when compared with other sourcing decisions, except in an economic crisis (PérezLópez, Prior, and ZafraGómez2015). For instance, diseconomies of scale become more pronounced when the costs of coordination and communication increases with the scale of the activity. This is because of a correspondingly larger increase in administrative intensity required under IMC. As social services are inherently laborintensive, it becomes harder to reach the necessary economies of scale through IMC (Allers and De Greef2018). Given the possibility that not all decisions will be made on cost efficiency grounds alone, the type of public service, output or population size and institutional design are also important in determining whether cost savings are possible from IMC (Bel and Warner2016; Allers and De Greef2018; Aldag, Warner, and Bel 2020). For example, (Hammerschmid et al. (2019)) found that contracting out and downsizing are both positively related to perceptions of cost efficiency (i.e., reduced costs of providing services). However, Hammerschmid etal. results also show that the cost reduction from downsizing (but not necessarily contracting out) comes at the expense of service quality, or “quality shading” (Jensen and Stonecash2005). The evidence however on factors that influence alternative sourcing decisions is mixed. (Brown and Potoski(2005)) found that governments may decide to competitively outsource the delivery of these services because they lack internal capacity and experience, as sometimes is the case with social services. Amongst municipalities in Switzerland, IMC arrangements are more likely to be found in services that require personalized service provision, such as social assistance, youth work, children and elderly care, and nursing homes (Strebel and Bundi2023). The opposite outcome is also observed. Given the complexities involved in delivering “personal” (i.e., social) services, in certain contexts, only municipalities have sufficient capacity to deliver them (Albalate and Bel2021). In a panEuropean comparative study, (Bel etal.2023; cf. Bel etal.2022) attempt to reconcile these divergent observations by suggesting that the differences can be attributed to national or institutional specificities. Some countries, such as Spain and Italy, benefit from (or perhaps require) a supramunicipal tier of government (also known as “diputación”) that sits inbetween the cooperating municipalities and the service delivery organizations to resolve issues arising from having multiple principals (a characteristic of IMC). Supramunicipal tiers of government also serve to ensure that citizens living in lightly populated municipalities (there are numerous in Spain and Italy) have basic access to social services infrastructure that would otherwise be difficult to provide without the requisite economies of scale. Such arrangements, however, are uncommon elsewhere. 2.2 | Complexities in the Provision of Social Services Drawing on transaction cost theory, Rodrigues, Tavares, and Araújo(2012) concluded that service complexity is a key determinant of sourcing decisions across a range of public services. When services become more complex to deliver, municipalities are more likely to adopt what Rodrigues etal. label as “hierarchical” approaches (i.e., direct provision), rather than marketbased provision. In this regard, service complexity contributes to contracting complexity as activities become harder to measure and agreements more difficult to design and monitor. In addition, complexity also arises when idiosyncratic factors are at play, such as the influence of ideology mixed with the cost efficiencies of alternative sourcing decisions previously discussed. For instance, rightleaning politicians have shown a marked preference for contracting out a vast swathe of public services (Savas 2000; Van Slyke 2003; Van Slyke 2007; Fredriksson et al. 2010; Stolt and Winblad 2009; Stolt, Blomqvist, and Winblad2011; Elinder and Jordahl2013; PlataDíaz etal.2019; Alonso and Andrews2020). In the context of social services, attempts to transform the cost efficiency of social services through privatized outsourcing or IMC is reflective of a growing belief that privatization of social care is the only way in which to control costs and/or alleviate fiscal stress (Van Slyke 2003; van Slyke2007). The expanding role of the private sector is driven in 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 4 of 14 Public Administration, 2024 part by a political desire to demonstrate that a smaller state can deliver more efficient outcomes. For example, it has been argued that increased efficiency can be achieved if the state relinquishes its responsibilities for direct service provision to focus instead on nurturing a vibrant marketplace of private sector firms to deliver services. Such ideologies are embedded within technologies built around the private sector or other forms of indirect provision used to manage fiscal pressures (Purcell and Chow2011; Bracci and Llewellyn2012; Chow and Bracci2020). A greater focus on cost efficiencies can also be seen in the growing use of “accounting logics” to encourage more financial “responsibilization” and greater receptivity toward contracting external providers (Llewellyn1998a, 1998b; Chow, Greatbatch, and Bracci2019; Lejarraga, Ortiz Martínez, and Marín Hernández 2024). In such environments, individual clients are being made to shoulder more of the risks and responsibilities stemming from shrinking welfare budgets and/or the consequences of outsourcing (Llewellyn1998a, 1998b; Bracci and Llewellyn 2012; Junne and Huber 2014; Junne2018; Pastor Seller, Verde Diego, and Lima Fernandez2019; Chow, Greatbatch, and Bracci2019; Chow and Bracci2020). New technologies of the self are developed, drawing on accounting logics that emphasize the need to embed cost–benefit comparisons and other financial considerations when it comes to developing care plans for individuals (Chow, Greatbatch, and Bracci2019). The widening application of accounting logics in the provision of social services across Scotland (Llewellyn1998a, 1998b), Italy (Bracci and Llewellyn2012), England (Chow and Bracci2020) and Germany (Junne and Huber2014; Junne2018) have also led to more responsibilities for financial decisionmaking being shared with the client (e.g., planning and budgeting for care) and/or their extended family network. The risks however are that personalization and transfers of responsibility onto individuals receiving care (and their families) are done solely for the benefit of the state's fiscal position. The first risk is evident during the 2008–09 economic crisis, when the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF; collectively, the “Troika”) imposed reforms on the Spanish government that require citizens to shoulder greater personal responsibility for their own care, as well as austerity measures that significantly reduce aggregate public spending (Pastor Seller, Verde Diego, and Lima Fernandez2019; Bertz, Quinn, and Burns2023). In implementing such changes, it is implicit that the extended familial network—a socioeconomic feature common to some Mediterranean countries such as Spain and Italy (Del Valle etal.2013) – would fill in for reductions in state support (Pastor Seller, Verde Diego, and Lima Fernandez2019). The second risk is when the use of accounting logics to improve cost efficiency: (1) Depersonalizes the experience of clients receiving care, as an Italian study has found (Bracci and Llewellyn 2012); and/ or (2) potentially masking coercive elements of such policies, as (Junne's(2018)) study on the implementation of personal budgets for disabled individuals in Germany shows. From the perspective of the state, the inclination to adopt policies that encourage greater privatization and marketbased solutions such as outsourcing social services are more likely to be adopted by rightleaning municipalities. The effects of such political partisanship are evident across much of northern Europe, from England (Alonso and Andrews 2020), Finland (Fredriksson etal.2010; Tynkkynen, Lehto, and Miettinen2012), Sweden (Stolt and Winblad2009; Stolt, Blomqvist, and Winblad2011; Elinder and Jordahl2013; Guo and Willner2017; Lindh and Johansson Sevä2018; Lindholst etal.2018) to Denmark (Petersen, Houlberg, and Christensen2015; Foged and Aaskoven2017). The impact of ideology on social services, however, is not uniform. Despite evidence of ideological partisanship in Sweden (Elinder and Jordahl 2013), the privatization of elderly services was found to not only generate substantial cost savings (from a more intensive use of labor) but also improved service quality (Stolt, Blomqvist, and Winblad 2011). In Denmark however, the political partisanship evident in social services is not present in more technical services, where decisions to contract out are generally made on pragmatic or economically rational grounds (Petersen, Houlberg, and Christensen2015). Similarly, larger and/or wealthier Danish municipalities are also more likely to outsource social services but less so for technical services (ibid.). Like Denmark, larger and/or more rightleaning municipalities in Spain, along with an additional factor of fiscal stress, have been found to be key determinants in the outsourcing of social services (PlataDíaz etal.2019; Cabaleiro and Buch 2023; CuadradoBallesteros and PeñaMiguel 2024). Some nuance is needed, however, when comparing social services in Spain with experiences from England and/or Scandinavia (Finland, Sweden, and Denmark). (PlataDíaz etal.(2019)) notes that austerity in Spain (as discussed earlier in Pastor Seller, Verde Diego, and Lima Fernandez2019) was not a key determinant of contracting out, despite their data drawing on the period immediately following the global financial crisis in 2009–10. Instead, municipalities in Spain manage the effects of austerity policies by attempting to keep the provision of social services inhouse, confounding expectations that they would be outsourced. In this regard, in addition to a growing preference for Direct provision when complexity of service provision increases (Rodrigues, Tavares, and Araújo2012; HancuBudui and ZorioGrima2024), the impact of austerity also gives rise to a similar preference, ostensibly by reducing the challenges involved in managing multiple external contracts. It is notable that IMC has relatively higher costs than other sourcing decisions, due to the complexity involved in collaboration (Elston, MacCarthaigh, and Verhoest2018). It is therefore unsurprising that, in the case of Spain at least, coping with austerityinduced reductions in funding would drive a preference for Direct provision. 3 | Context, Data, and Method This paper considers the case of social services in Spain. Austerity policies imposed by the Troika (EC, ECB, and IMF) in 2008 has led the Spanish government to limit public spending on key services (including social services) and to accelerate outsourcing to the private sector (Pastor Seller, Verde Diego, and Lima Fernandez 2019). As previously discussed, (Pastor 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 5 of 14 Seller et al. (2019), p. 279) highlighted how ideological discourse was used to justify the reduction in funding for social services in Spain, with the budget falling by 23% between 2011 and 2015. Pastor Seller etal. also pointed out that the reduction in resources was made despite demands for emergency social services increasing by 182% in 2012, with women and children most affected. The cost efficiencies of, and influences on, alternative sourcing decisions are therefore important considerations for municipalities when managing pressures on social services during a time of rising demands for services and budget constraints. The first part of our analysis (RQ1) compares the relative cost efficiencies of municipalities' alternative sourcing decisions across the whole of Spain. The second (RQ2) analyses the results from a survey of municipal managers across Andalusia to understand the factors influencing their sourcing decisions. 3.1 | Data For RQ1, our study measures the cost efficiencies of alternative sourcing decisions taken by municipalities (“ayuntamientos”) across Spain. Our data are taken from municipal provisions of social services in Spain, which are organized based on population size and geographical distribution. The Local Government Act (Article 26 of Act 7/1985 (2 April 1985) amended Act 27/2013 (27 December 2013)) on the rationalization and sustainability of local government obliges municipalities to provide social services when their population exceeds 20,000 inhabitants. The provision of social services, however, is voluntary for municipalities with populations below that threshold, with users here either have services provided by the “diputación” or are expected to avail of the next nearest municipality. As sizeable numbers of municipalities across Spain are below the threshold, our sampling is based on the following criteria: (i) The inclusion of any municipality that provides at least some social services, regardless of its population size; (ii) filtering out anomalous results from the data source (e.g., implausible numbers of facilities per municipality); and (iii) the exclusion of municipalities with incomplete and/or missing data. Out of a total of 8132 municipalities with full data available over a nineyear period from 2014 to 2022, our sampling yielded 735 usable municipalities for inclusion in the analyses. The cost of running social services is calculated from the Effective Cost of Local Services (CESEL), as defined by the local government Act 27/2013 (27 December 2013), for (N = 735) municipalities across Spain. CESEL represents the minimum actual expenditure (which includes both Direct and Indirect costs for each public service) required to maintain a baseline service, as defined by the legislation HAP/2075/2014, 6 November 2014. All municipalities in Spain are legally required to compile figures of actual expenditures for the Ministry of Finance. Table1 provides the weblink to the published expenditure data used in this study. In RQ2, we analyze the factors that influence municipal managers' sourcing decisions. Studies that elicit the opinions of municipal managers to gain insights into motivations for contracting out are relatively rare in the literature, with (van Slyke(2003, 2007); Lindholst etal.(2018)) and (Aldag, Warner, and Bel(2020)) being notable exceptions. For instance, (Aldag, Warner, and Bel(2020)) surveyed municipalities to capture impressions of outcomes (cost savings, quality, coordination) from shared service provisions. (Lindholst etal.(2018)) highlighted the multifaceted nature of sourcing decisions beyond cost efficiencies to discuss the political and operational complexities of managing municipal services. (Van Slyke(2003, 2007)) interviewed municipal managers in social services, finding that, beyond cost efficiency considerations: (i) The need to accommodate prevailing politics and ideologies; (ii) the state of market competition for service provision; (iii) and managerial capacity all contribute to the complexity of sourcing decisions for social services. Our survey questionnaire therefore aims to capture the multifaceted nature of influences on managers' sourcing decisions. Drawing on (Aldag etal.(2020), p. 279) approach, the survey measures both managerial impressions of the factors that influence sourcing decisions and outcomes from the decision taken. The questions used are listed in the lefthand columns of Tables2 and 3 (translated from Spanish into English by a coauthor). The survey contains 31 items on an ordinal scale (1–10), with TABLE 1 | Variables and source of data used. Type Variable Definition Input Effective cost (CESEL) The minimum cost (both direct and indirect) to provide the service Output Local shelters Number of local shelters in the municipality Drug rehabilitation centres Number of centres for drug rehabilitation (dropin only and residential stay) Day care centres Number of centres for preschool children Centres for social assistance Number of reception centres for general social assistance Staff attached to the service Number of employees Nursing homes Number of centres for adult care Size of Social Assistance Centres Total area, in m2, of the centres Note: All public data can be downloaded from the following link: https:// servi ciost elema ticos ext. hacie nda. gob. es/ sgcief/ Cesel/ Consu lta/ Consu lta. aspx. Source: Ministry of Finance, Spain. 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 6 of 14 Public Administration, 2024 16 questions detailing influences on municipalities' sourcing decisions, 13 on impressions of outcomes and the final two on accounting logics and on impressions of efficiency. The survey forms part of a larger cohort of related studies commissioned by the Andalusian provincial government to examine how organization of public services can be improved. The survey was emailed to municipal managers located across the province of Andalusia (the most populated region of Spain, pop. 8.47 million (2021), INE: National Institute of Statistics). From a total of 785 municipalities in Andalusia, surveys were only emailed to 258 that met the population threshold of 5000. Municipalities under this threshold are unlikely to have a full complement of social services infrastructure that is needed for the analysis. Out of the 258 municipalities, an average of two responses per municipality was received from managers located at 39 municipalities (N = 78). The survey response rate, based on the number of unique municipalities, is 39/258 = 15.1%. In terms of geographical representativeness, responses were received from municipalities located in all the largest metropolitan areas across the province (Almería, Cádiz, Córdoba, Granada, Huelva, Jaén, Málaga, and Seville). 3.2 | Method: Cost Efficiencies of Different Sourcing Decisions (RQ1) In RQ1, the cost efficiencies across three sourcing decisions were compared: “Direct,” “Indirect,” and “Intermunicipal cooperation” (IMC). The approach taken in categorizing different types of sourcing decisions draws on (PérezLópez etal.(2016)) and (Bel etal.(2022)) method. The Direct approach is defined as when a municipality either delivers the service inhouse, through a public agency, and/or company controlled by the municipality. Risks and rewards remain with the municipality. The Indirect approach is when services are delivered by an external organization, either as a private or jointly controlled (e.g., publicprivate partnerships) company. The Indirect provider, the private or the jointly controlled company, is expected to take on TABLE 2 | The principal components representing managerial impressions of factors influencing sourcing decisions. Components (Influences) Principal components (variance %) Users Providers Complexity 35% 12% 11.5% Service provision is not a statutory requirement −0.025 −0.014 −0.122 The cost of the service is unaffordable 0.000 −0.011 −0.019 The service requires bespoke assets, which the municipality is reluctant to acquire on cost grounds 0.000 −0.031 −0.041 Reduction of transfers/subsidies from other administrations for service provision 0.001 −0.030 −0.074 To achieve economies of scale 0.063 0.163 0.111 To reduce the cost of providing services −0.007 −0.080 0.054 To manage the complexities of service provision 0.167 −0.123 0.659 It improves the management of services and reduces organizational issues 0.101 −0.358 0.143 It enables the municipality to improve coordination with and control over the service provider (prevention and social inclusion) 0.001 −0.074 0.141 Better monitoring of service provision 0.292 −0.441 −0.283 Proposals submitted by potential service providers (companies, other municipalities, or other institutions) 0.089 0.309 0.084 To cope with increases in the volume of services 0.281 0.054 0.001 To meet the demands of service users or citizens in general 0.253 0.274 −0.161 To meet the demands of associations and civic groups 0.044 −0.021 −0.173 To meet the demands of municipal staff and unions 0.109 −0.019 −0.257 Proposals for improving services from municipal board (plenary) debates 0.015 0.246 0.022 Note: Shaded cells are the most representative components in the dimension. Source: Authors. 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 7 of 14 or share the risks and rewards from the provision of services. To mitigate against the potential for a private sector provider renouncing an unprofitable contract, it is common for municipalities in Spain to demand collateral or sureties. Indirect approaches can include forprofit, notforprofit and all other forms of outsourcing ventures between the municipality and the private sector. (PérezLópez et al. (2016)) distinguishes between municipal under contract (MUC) and private production with cooperation (PPC). However, we adopt (Bel etal.(2022)) definition to grouping sourcing decisions by combining both MUC and PPC under a single category of Indirect provision as differences between the two are negligible in our sample. Finally, IMC is defined as an approach undertaken by multiple municipalities to jointly manage and operate social services, typically through a vehicle created specifically for this purpose (e.g., a consortium or association). Risks and rewards are shared across the municipalities. Across all three sourcing decisions, cost efficiency is estimated using the Technology Gap Ratio approach (TGR). TGR estimation requires input (CESEL) and multiple output variables, which are listed in Table1. Technology gap ratios (Battese and Rao2002; Battese, Rao, and O'Donnell2004; O'Donnell, Rao, and Battese 2008) are estimated using the regressed data on local frontiers (CEF). TGR is simply the distance between the efficiency measure of the municipality under a local frontier and the metafrontier (CE). For a given level of output, TGR is defined as the lowest possible cost of the metafrontier divided by the lowest total cost of the local frontier: TGR is representative of recent innovations in panel data that combine metafrontier analysis (GarridoRodríguez etal.2018; PérezLópez, Prior, and ZafraGómez 2018; CamposAlba etal.2020, 2021, aheadofprint). This methodological innovation has the advantage of temporal stability (CamposAlba etal. 2020), meaning that cost efficiencies attributable to different sourcing decisions are not specific to (or conditional on) the point in time on which it was measured. The approach enables more robust and timeinvariant comparisons of cost efficiencies between different sourcing decisions, mitigating against the potential for its reversal (e.g., Hefetz and Warner2012; Bel, Hebdon, and Warner 2018; Albalate and Bel 2021; Jansson etal.2021). The estimation of timeinvariant cost efficiencies for social services requires the application of a metafrontier (Battese and Rao2002; Battese, Rao, and O'Donnell2004). There are however limitations with this approach, because the efficiency of municipalities operating under a particular sourcing decision cannot be immediately compared with that of other municipalities TGR f,t=CE t CE f, t TABLE 3 | The principal components representing managerial impressions of outcomes from the adopting alternative sourcing decisions. Components (Outcomes) Principal components (variance %) Satisfaction Efficiency Privileging 54% 14% 7.5% Improved cost savings 0.015 −0.002 0.002 Generated economies of scale 0.068 0.159 0.136 Reduction in the complexity of service provision 0.042 0.175 0.378 Problems arising from the way in which the service is organized in the municipality 0.128 0.192 0.015 Increased costs due to poorly drafted service contracts 0.010 0.025 0.009 Increased costs for the municipality arising from the need to monitor services provided externally 0.001 0.015 0.037 Increased number of potential organizations offering their services 0.005 −0.017 0.021 Increased volume of services provided 0.122 0.123 −0.113 Increased satisfaction of service users 0.242 −0.358 −0.919 Increased satisfaction of associations and civic groups 0.123 0.264 −0.076 Agreeing to the demands of municipal staff and unions 0.189 −0.305 0.789 Improving the consensus of the municipal board (plenary) on services operated 0.178 0.385 −0.156 Improved satisfaction of the municipal administration on services operated 0.201 −0.545 0.213 Note: Shaded cells are the most representative components in the dimension. Source: Authors. 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 8 of 14 Public Administration, 2024 operating under other forms (BeltránEsteve etal.2014; CorderoFerrera, Santín, and Simancas Rodríguez 2017). The lack of comparability is discussed in studies that have established the presence of intrinsic differences in cost efficiency values across the different sourcing decisions (BalaguerColl, Prior, and TortosaAusina 2013; Simões, Carvalho, and Marques 2012). Thus, when the metafrontier concept is applied, different efficiency frontiers are obtained for each sourcing decision considered, called local frontiers. To overcome this limitation, efficiency values are initially estimated for each municipality that corresponds to each local frontier, or sourcing decision. This estimate facilitates the comparability of municipalities that provide similar services using the same sourcing decision. Next, a general frontier (i.e., metafrontier), an “umbrella” variable that includes all the local frontiers (Rao, O'Donnell, and Battese 2003), is estimated for all municipalities irrespective of the sourcing decision used. This method calculates municipality cost efficiencies by comparing it with a subsample of munits, whilst controlling for the presence of outliers (Simar and Wilson2008). The approach taken is based on established methodologies developed by (GarridoRodríguez etal.(2018); CamposAlba etal.(2020); CamposAlba etal.(2021)), all of which adapted the orderm data panel (OMDP) method for municipal cost efficiency data. A ranking of TGR values would facilitate the determination of the sourcing decision closest to the metafrontier. As TGR values enable the comparison of relative cost efficiencies of sourcing decisions (ZafraGómez etal.2013; PlataDíaz etal.2019; Esteve etal.2024), the sourcing decisions based on TGR is likely to reduce costs and raise levels of efficiency. 3.3 | Method: Impressions of Factors Influencing Sourcing Decisions and Outcomes (RQ2) In RQ2, the factors influencing municipal sourcing decisions are analyzed using a combination of Principal Components Analysis (PCA) and multinomial logit regression analysis (MLA). The survey data are first made more representative and tractable through PCA, by reducing the number of variables for consideration (Wold, Esbensen, and Geladi1987; PeresNeto, Jackson, and Somers2005). This is achieved by “transforming the data into fewer dimensions, which act as summaries of features” (Lever, Krzywinski, and Altman2017, p. 641). PCA is an approach commonly used to analyze highdimensional data while retaining its underlying trends and patterns. Three dimensions for the impressions of factors influencing sourcing decisions (“Influences”; Table 2) and a further three on impressions of its outcomes (“Outcomes”; Table 3) are extracted from the survey data. The shaded figures represent individual components that make up each of the three principal components. In Table2, the principal components of “Influences” are categorized as being driven by “users” of social services (35% variance), “providers” of those services (12%), and the “complexity” (11.5%) involved in operating such services, giving a cumulative variance of 59.0% (note additions affected by rounding errors). For the largest principal component, users, it appears that demands from users and the need for improved management capacity are key influences of sourcing decisions. For the next two components, providers and complexity, it can be interpreted that some sourcing decisions were taken based on organizational and political expediency (e.g., in providers, see contrasts between the negative figures for improved services and better monitoring with positive figures for proposals from service providers and the municipal board itself). In Table 3, the principal components of “Outcomes” are “Satisfaction” (54% variance) of various stakeholders from the choice of sourcing decision, whether the decisions have changed the “Efficiency” (14%) of the municipalities' operations, and whether the outcomes reflect a “Privileging” (7.5%) of the interests of certain stakeholders over others, giving a cumulative variance of 74.9%. For the largest principal component, Satisfaction, it appears that a key outcome from adopting a specific sourcing decision is improved satisfaction across all stakeholder groups (users, citizens, staff, unions, municipal board). The magnitude of differences in variance between Satisfaction (54%) and Efficiency (14%) suggests that the former is by far the key component explaining impressions of outcomes from adopting alternative sourcing decisions. Next, the relationship between cost efficiency (TGR values in RQ1) and managerial impressions of factors influencing sourcing decisions and outcomes was examined using multinomial logit regression analysis (MLA). As our model does not specify nor require, a priori, a clear ordering of sourcing decisions, MLA is a preferred approach because it does not impose an arbitrary structure on the analysis (Long1997). The MLA dependent variable is sourcing decision. Control variables included in the regression are population size, political leaning, power sharing, with data taken from the National Institute of Statistics and Ministry of the Interior. For managerial impressions, variables consist of the three principal components from Table 2 (Users, Providers, and Complexity) and Table 3 (Satisfaction, Efficiency, and Privileging). Two additional control variables (not in the PCA) from the survey are also included in the MLA, on managerial impressions on the use of “accounting logics” and on the “effectiveness” of alternative sourcing decisions. Table4 outlines the data sources and descriptive statistics of the variables used in the MLA. 4 | Results and Discussion 4.1 | Cost Efficiencies of Different Sourcing Decisions (RQ1) Table5 presents the results of orderM panel data regressions of TGR values of alternative sourcing decisions. As articulated in (PérezLópez etal.(2016)) and (CamposAlba etal.(2020)), TGR enables comparisons of the cost efficiencies, with larger TGR values indicating greater cost efficiency. Table5 shows that Indirect provision is the most efficient sourcing decision (Mean TGR = 0.9751), followed by Direct provision (0.9594) and IMC (0.8436). At face value, the results (with Indirect provision ranking the most efficient) appear to support the assertion that private sector involvement improves the cost efficiency of service provision across the public sector. 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License 9 of 14 TABLE 4 | Descriptive statistics of the multinomial logit analysis (MLA). Variable Source Definition Measure NMean SD Min Max Efficiency value (TGR) Ministry of Finance Estimation of efficiency parameters using the orderm technique Scale 78 0.5387 0.3154 0.0128 1.9212 Population size (ln) National Institute of Statistics Number of inhabitants expressed in natural logarithm Scale 78 10.651 0.772 9.914 12.701 Political leaning Ministry of the Interior Dummy variable where 0 if the municipality is conservative (rightleaning) or 1 if it is leftleaning Categorical (0 or 1) 78 0.579 0.115 0 1 Power sharing Ministry of the Interior Dummy variable where 0 if the municipality is in a coalition or 1 if it has an absolute majority Categorical (0 or 1) 78 0.752 0.087 0 1 Accounting logics Survey data Measures the extent to which accountingbased techniques influences sourcing decisions Ordinal (1–10) 78 6.000 2.538 110 Effectiveness Survey data Measures managerial impressions of the effectiveness of different sourcing decisions Ordinal (1–10) 78 7.231 1.172 5 9 Influences Impression of factors driving the sourcing decision Users PCA (Table2)Components with the highest variance Scale 78 8.221 97.5 −234.5 398.0 Providers PCA (Table2)Components with the second highest variance Scale 78 12.527 95.9 −172.6 389.8 Complexity PCA (Table2)Components with the third highest variance Scale 78 2.412 90.9 −346.6 242.5 Outcomes Impression of outcomes from a sourcing decision Satisfaction PCA (Table3)Components with the highest variance Scale 78 2.053 91.3 −198.6 362.3 Efficiency PCA (Table3)Components with the second highest variance Scale 78 −9.997 90.7 −290.4 239.7 Privileging PCA (Table3)Components with the third highest variance Scale 78 15.292 86.9 −237.2 213.2 Abbreviation: PCA = principal components analysis. Source: authors. The sample of N = 78 municipalities in Andalusia includes 24 municipalities provide social services directly, a further 24 adopted various indirect approaches, and the final 30 utilized IMC. 14679299, 0, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/padm.13047 by Juan-Carlos Garrido-Rodríguez - Universidad De Granada , Wiley Online Library on [03/12/2024]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License