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In this empirical study, we examine whether systematic differences exist between government contracts with nonprofit and for-profit service providers. Based on principal–agent theory, we examine the potential comparative advantage of nonprofit organizations over for-profits in two areas: contracting process and contract performance. We test hypotheses using data from a national survey of local government contracts with private service providers. The results provide some support for the propositions that public officials trust nonprofits more than for-profits and grant them additional discretion. Even stronger support is found for the propositions that nonprofits are monitored less than for-profits and are awarded contracts of longer duration and for services characterized by higher levels of task uncertainty than those awarded to their for-profit counterparts. We find no significant differences in performance between nonprofit and for-profit contractors in terms of cost, quality of work, responsiveness to government requirements, legal compliance, or customer satisfaction.
Witesman et al. (Mon,) studied this question.