Contracting and Performance in Agencies: A Question of Control, Dia-logue or Autonomy?

As part of New Public Management (NPM), contracting represents a supplement to the traditional hierarchical and rule-based managing of relations between actors in order to improve performance (Fortin and van Hassel 2000; Greve and Ejersbo 2002; Drewry et al. 2005; Verhoest 2005). To various degrees contracts combine some degree of managerial autonomy and influence on goal setting in return for a consistent and congruent system of control and monitoring.

Internal contracts are often finalized within the ‘shadow of hierarchy’ between mutually dependent parties in a long-term, co-operation-based relationship (Brownsword 1996: 19; Greve 2000:155), which create special conditions for contracting. Few studies have empirically investigated internal contracting processes within public organizations (e.g. Verhoest 2005; Greve and Ejersbo 2005; Greve 2000) but resent research shows that agencies attain higher goal attainment when agency head experience that the department balance dialogue and autonomy with some element of control in the process of internal contracting (Bjørnholt and Salomonsen 2011). This implies, that effective steering include a combination of decentralized management with hierarchical control (Peters and Pierre 2007: 6). The fact that ‘agencification’ produces a more complex picture of the steering relationship between agencies and their parent ministry is also reflected in a recent study by Van Thiel and Yesilkagit, who conclude that lower degrees of autonomy do not lead to lower degrees of trust between contracting agencies and their parent ministry (2011: 795). Hence, there is no simple relationship between trust, dialogue, autonomy, control and performance in agencification in general or in the contractual relationships between departments and agencies in particular. The ambition of this paper is to investigate the causal mechanism behind these complex relationships by investigating why and how the balancing of control, dialogue and autonomy in internal contracting in agencies leads to better performance?

The research design in primarily explorative in the sense that the point of departure is an empirical identification of differences across agency heads’ experiences and descriptions of internal contracting and investigation of how these differences relates to the difference in the agencies’ performance. Hence the ambition is to give a more qualitative account of why and how a balanced use of internal contracting leads to a better performance. These findings are then theoretically interpreted based upon a combination of literature on agencification as well as public management.

We compare contracting across all Danish agencies based on a combination of survey, documentary and interview data. To measure the degree of performance as the degree of goal attainment, all agency contracts for 2008 as well as the subsequent ‘enterprise accounts’ defining the goal attainment have been collected. There were 62 agencies in 2008, 58 of which had a contract. Goal attainment is measured by linking each performance demand in each contract to the corresponding assessment in the enterprise accounts of whether the demand has been fulfilled, partly fulfilled or not fulfilled. The data on the experience of the contracting process were collected as the agency heads’ subjective assessments of various aspects of contracting in a Web-based survey. As the contracts for 2008 were evaluated in 2009, we decided to send out the survey in the spring of 2010. The survey was sent to 54 of the 58 agency heads negotiating and managing agency contracts for 2008 (response rate 69 per cent). In order to link contracting processes and goal attainment, the survey data were merged with the codification of the fulfilment of performance demands in the contracts. In addition we performed individual qualitative interviews with more than half of the agency heads from the spring of 2010 until the autumn of 2010.