Competition, Contract Design and Quality of Outsourced Services
Abstract: This paper estimates the impact of contract design and monitoring on the delivered quality of services provided through outsourcing. If the literature on competitive tendering had shown that contracting out allows to reduce costs, there exist up to now few evidences concerning the fact that costs savings could be achieved through lower quality of the service (quality shading hypothesis). Mixed results obtained by the previous literature on this issue seems to suggest that adverse effects on quality are the consequence of poor application of outsourcing process rather than outsourcing per se. Unlike previous studies, which have relied on case studies or cross-sectional data and on subjective measures of service quality, a four-year panel data of 102 contracts is used to estimate a series of fixed-effects regression models. These panel estimates suggest that quality can effectively be improved by implementing better contract specification and management.
