Efficiency Through Contracting

When Basava Rani, 32, suffered a miscarriage in her remote village of Kottaiyur in Bangalore, India, her husband contacted the local nurse, who in turn was able to dial 108 to reach a free ambulance service. Within an hour, Mrs. Rani was able to receive treatment at the local Primary Health Center.* Mrs. Rani was able to receive timely and efficient care due to GVK EMRI, which was contracted by the government to run the call center and ambulance services in 13 Indian states. By contracting GVK EMRI, the government is able to provide a free service to its citizens while capitalizing on the efficiencies of the private sector.

But GVK EMRI isn’t the only example of a government using a private sector entity to deliver services. The Center for Health Market Innovations has identified more than 65 examples of contracting across the globe, ranging from India, to Uganda, to Mexico. Considering the growth in its use, it is appropriate that contracting had a session devoted to it at the Engaging the Private Sector in Health in Africa conference held by GIZ in Dar es Salaam, Tanzania in May. Led by Jorge Coarasa, an economist working on health policy reforms in Africa, the session provided a number of insights into this innovative financing model. [Click here to see Mr. Coarasa’s presentation.]

First, what is contracting? According to Mr. Coarasa, contracting is the purchases of a specified service from a specific provider for an explicit quantity of a known quality at an agreed-on price for a given period of time. He identified 3 different types of contracting:

  1. Contracting in refers to a government bringing in outside private management to operate a government services. In this case, the private provider generally doesn’t own or employ the main asset used to provide the service (whether that asset is workers, machinery, etc.).
  2. Contracting out includes the government purchase of services from a private source that then provides the service in its entirety, using primarily the private organization’s own workforce and resources. The GVK EMRI emergency services described above are an example of contracting out.
  3. Finally, performance-based contracting, which can overlap with both contracting in and contracting out, involves a clear definition of objectives and indicators against which the contractor’s performance is measured. Data is collected on these indicators and the subsequent performance evaluation leads to consequences for the private provider.

What are advantages of contracting key services? Mr. Coarasa gave numerous benefits of contracting services, including:

  • Private providers can be more flexible than government
  • When there is a focus on performance, government threat of sanctions for non-performance against an external organization is more credible
  • Contracting can result in constructive competition
  • Contracting encourages managerial autonomy, innovation, and better management
  • Rather than expand resources on direct service provision, contracting allows the government to play the stewardship role for which it is most suited

Nevertheless, contracting only works in the right conditions. For contracting to be successful, there must be government capacity to design the necessary monitoring and evaluation mechanism and manage the contracts. Additionally, the government may have difficulty setting the right price for the contract, over- or under-estimating how much money is necessary to carry out the contract, which can lead to inefficiencies. Finally, in addition to a capable government, there must also be a strong and trust-worthy private sector partner which is capable of carrying out the contracts.

There is no silver bullet, but under the right conditions, Mr. Coarasa concluded, contracting does have the potential to improve service delivery.

*This story was taken from a June 12, 2012 New York Times article on GVK EMRI.”