Contracting and Higher Education

With the renewed interest in achieving efficiency, governments and higher education institutions are seeking alternative approaches to delivering higher education. Borrowing from the recent debate about the privatization of public services, the use of contracting in higher education is receiving increased attention. This is not to suggest that contracting is a novel approach, but simply an option that is being considered more frequently. The attractiveness of contracting is attributable to its sole focus on the question of how to organize production to minimize service delivery costs, in contrast to other methods which consider alternative production arrangements simultaneously with reduced levels of public provision, that is, financing.' Cost savings derive from a variety of sources: scale economies, managerial incentives, managerial flexibility, and competitive market forces. Contracting separates the production decision from the provision decision, thus permitting the attainment of optimal production scale. The selection of external producers from the private sector increases managerial incentives and flexibility that public personnel and budgeting systems limit. Additionally,