Ahmed Rafiuddin
Competitive Bidding and Outsourcing Decisions
Ahmed Rafiuddin
Competitiv,e Bidding and Outsourcing
Decisions
Principles, Methods, Practices
VDM Verlag Dr. Muller
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DEDICATION
To my wife, Mrs. Shahnaz Mirza ,md om sons, Shadnlim ;md Farhan, and my pan::nts,
Taherucldin anti Mrs. SIIl!l'iftmnessa..
ii
TIll,
nnd Dr. Bob Willian'I" alld Pr()I,'t'~$sOI' Warwick Funnell (University of their guidnnce, Imd illisightflli commellt"
I am indebwcI 10 It nurnber of people for their suggesti()Jl, and gIJidarlc(~ 10 tile camplcliol'! (If this resClIl'ch project. I nm grmeflll to my
PH:lfc:ssm MJ,R, Gaffikill, Professor ,Mkllll,cIJ
David 1..
111m grateful for
Bn::ndml Stal1ley
I am also (If the panicipimts ill ,lind seminar presentatiolls at the University of I am tllunkJLlI 1'01' the C(lIls.l,I'I,ICtivl~ cOllunems and suggestions hom tile of the colloqllium 011 Ac(;ollIIting Ilml AC(:OII mabili!y, beld
i!1Bri~ba!1e ill ZOO() , IIrw exploration stage of this lll'l inlerview with Mr. 101m
Corrigall (Jf CPA AII.ISlmli'i (Ccntre of &cellence lor Accou11ting) provided significam into the rCM(~iln::h opp()rtunities in AlIstrldillll l(lcal g(lv\lrnllll~~IIL I. alii
('or John COr1:igllll' $ contributiolls,
lam
gu idance lmel I
(0 Professor Michael Gaffikin for the
,',>n'\n,'F'1J""1, material
valuable mCIl1.bers. In
die A.ssiSlll.lll
I mll also University fOr
ub5enees from work.
the UI1ivci'si!y of WO]JOllgOllg, Univ,ersity or Dhaka ami "llme.1 Cook this Il~,search while I was as a lind leave of
Filially, J am gnlleflll to VDM Verlag Dr, Muller
TOWIl1:iville, 11.11y
Ihis I",~scarch project as II monograph,
for their guidallce and
DelOils
Chapt"!"
Tables
Figures
!1 1.2
1.3
1.4
1.5
1.5.1
15.2
1.6
1.7 1.8
1,9
110
iii
CONTENTS
CHAPTERS
CHAPTE.R 1
INTRODUCTION
Backgr<>~[ld.""."" ................................. ..
Slalcmcnl of l1I:scarch problem; ......... .
Ralionale of the ,tutly .................................... .
The objecti VM of tile ,!tidy ................ .......................... ..
Tile .iustificalion.1 fOl" selecting the site ...................... ..
The sigllificance of refprm bllsed sourcillig decision$
The access issue ..................................................................................... ..
The significance.of Local G.overnments ill the Australian public .sec lor ""
Theoretical appmprialelless of the slIIdy ........
An overview of the major findings.
Limitations of the smdy ................. ..
Smmnary orCha)ltel~s ...
CHAPTER 2
... , .. P08C mmJ/Jer
iij
.......... ix ... x
. ........... I
..... 2
........... 4
...... 5 . .... 6
.............................. 7 . .. ')
8 ................. 9
.. ............ Hl
....... 12
... 12
AN OVERVIEW OF CONTRACTIN.G OUT IN LOCAL GOVERNMENTS: INTERNATIONAL AND AUSTRAUAN EVIDENCE
2.1 Intr'xlllc(ioll ........................................................ .
2.2 CPllcepls of C(lnlmcting OU! .................................................................. " ... ..
2.3 Argllmellts for and agaillst conlractillg om. .., ................ .
2.3.1 Argml1m1lS for contracting 0\11 ......... ..
2.3.2
2.4
2.4.1
2.4.2
2.4.3
2.4.4
2.5
Arguments against conll1ICting om .... .
Competing theolies of .contracting OUI ...... ..
Propeny Right$ T~e"ry ............ ..
Public Choice Theory ........... ., ,.
Trallsm:!ion Cost Thoory .................................................. " ... ..
New hblic Milnagement Theory .................... .
Empirica.l evidellce Oil C()lllra~ting OUl ......................... ..
2.5 .. 1 ultemaliomll evid0nce on contracting OUl ................................. .
........................ 17
............................... 18
. .......................... 19
.. 20 .... 24
..... 26
. .... 26
.......... 27
. ........... 28 .. ............. 29
.. ............. 30
..................... 30
ill
2.6
2.7
l\hscnce of J1lJe!lsure~i (:,£)nll:)ct~tio'n
Clilipler ~lI1mn:uy ........... .,., ................... . . .. 41
CHAPTER 3
COMMON COST ALLOCATION: THE TRADITIONAL APPROACH
3.1
3.2
3..4
3.'1.2 3.5
4.6
4.7
lnt.rodIICI.:ioIl.,
(;"1l0IlpIS of com mOil
... ................................ , ... 43
The p[vce$$ of conv~llli(lmll overhead all(Jcal ion
meliuxj:s (Jf COIIIIIK",'1 mllocalioll." ............................................... ..
CHAPTER 4
COMMON COST ALLOCATION:
THE ACTWITY BASED COSTING APPROACH
Adtivily _Ba~ed C(),ling illl.phlmelllali()11 ......... ..
Chapter summary
.44
..... 55
. .. 56
63
68
70 75
80
CHAPTERS
A CONCEPTUAL FRAMEWORK FOR UNDERSTANDING OUTSOURCING DECISIONS
5.1
5.2 5,2.1
5.2.2
5.2.3
S.2A
5.3 ).3.1
5.3.2 5.3.3
Inlroduction.,.","" ... ",,,, ..
The ,Iervice c(ming ,erll'iromnenll in the public seclor.
The monopoly nalll.-e of oo,'vices .""',,.,,"""""
The inlemal reporting need .""""",,.,,"""''''''',,'' Th~l p~:l'fOi'mance evaluation environment ..
The skill level of ernployees.""""",."". The rationales of ,msting for conlracting.
Public secwr reform ~roUlnd the globe, ""
Scrllliny of social re5(lIlJ'C(:S.","",,",, .. ,,,.,,,",,,.,, .. ,, ... , ..
Benchmarking of serl'ic'c.s "", ... " .. , , ...... , .. , " .. " .. , ... , .. "'" ,., .. " "'''''''''' .......
"." il2 ,83
".,,' [;4
".""."',.,, 84
, .. ,,""" 85
".""",,.,," 85 ..,""".,,[;5
"" 86
'"'''''""'' 87 ".",." .... 87
5.4 A ,conceplual fmmework [0 evaluale public sector oll!sollJ"-cing decisions". '''".". 88 5.4, I Tile sp(;cificl1lion of lIc1ivi\ie.~ .. ", .. " .. " .. " .. " .............. , .. , ... , ............. " ... , .. . , .. ".",,,.,, ... ,,,,,.,,,8:9
5.'1,2 D<)Iermining .coSl of in lema I production ... , ............ ", ................ ", ......... , ....................... " .... 90
5.4.3 Deb~rmilling the relevant CO$l~ of inlemal pWdIIClioll ... " ......... " ....... ". . ..... " .. " ..... " 99
5.4.4
5.'1.5
5.5
6.1
6.2
Comparison 01" inlemal ,and cxtcmal bids .. " ..... , .. , ... "''''''
Dedsioll ab(.ml the servk-e prov;sio"1 ....... "" .. " ... "." .. .
Chapter summary ... """, .. " ... , ........ " .............. " .. ".,
CHAPTERS
RESEARCH METHOD
IntroduClion ... ,.", '''' " .. '"'''''''''' ... , -.''.''.''., .... "',,., __ ."."""." .... ,
An overview of qualitative n~search"" ....... "''''''' ... ''''''' .. "."
63 QIHllilative research traditions and thei,' domains ......... " ........ ..
6.4 Case sllldy as a qualitative research method "" ...... """ ....... ",,.
6.4.1 Argumellts. for case Sl\ldy research " ............ "
6.4.2 Argum(~llls ag,aillst \lsing cacle study research """." ..
65 Acceptability ~nd applicability of eiL'" study fi"ding,.
6,5.1 Internal validil.y ...
Hl2
.. Hl4
........ j()6
.... 108
".".109 ..... 111
." .......... 112
.. .......... , 116
... ".".117
"Wl
......... " .. " .... 118
6.5.2 External validity .................... """ ...... " .. , ..... " """,." .... " ..... " .................. 1 \9
6.6 De,~igll off the slIldy " .. "." .. , , .. , , ............ __ " ... ". ,,,' " ..... ,,",," , ... .
6.6.1. Selecting i.1 SuiUlble case ... " ......... " .... .
6,6.2 Preparatioll fol' emering the lIeld " .. " ....... ..
M.3 6.7
Collecting evidence ......... " .. , ... " .... "'" ..... __ , ............ " ..... __ ,, __ . ,,,.
Analysing data collected from the field .. .
.., .... " .... ,." ...... ,,, .. 121
" .. ,121
..." .. ,124
........ 125
.. ... ", ... " ........... 121
6.8 Chapter summary" ....... " ...... "" ....... " ... " .. " """"""""""""""""""""'''''''''''''' 131
vi
CHAPTER 7
A BFUEF ACCOUNT OF' THE R.ESEARCHED ORGANISATION AND 11""S RE.80URCE ALLOCATION SYSTEMS
7.1
7.2
7.3
7 J.!
7,4
Inlrocir.Ciion
Pwduclion divisions
Th~. budgeting sysiCl1l
Tile old bmlgeting am:!
The new b\.ldgeling IlIld
O.lLlIldl ... ""." ............. "H ................................. "." •• ".
allocalion SYSWIII ........
CHAPTERS
" .......... " B2
137
1139 .... " 1401
142
148 154
THE OUTSOURCING AND OVERHEAD ALLoCATION POLICIES AND PRACTICES: THE PRE AND POST R.EFORM ExPERIENCE.S
83
ll.4.4
B4:'i
8.5
8.5.4
8.5.5
TI"I~. <lrgllmenlS against (ml.sollrcing
l'b~ ()YCr~eHtI allocalion ill Ihe CmlllciL" ... "
The need [00' costing selvic.,).s.. ............................. .
DlllcHlliniOlg ~ul1sidy fl:lI' services ...................... .
The Irllnsfer pricing
·l'he. service level agrC!llncn!:s " ......
Aligllil1ll ~ervice produ!,tkm 1md service
162
. 165
""" ....... " ... 166
167
169
170
I7l .. ..... 172
............................ 173
....... " ....... 179 1.81
182
vii
8.5.7 Absorplion of surp!lls S~JPp()'1 iiervi,e~ costS ...... ..
8.5.8 The ABC illlplementation jlwjoct ...................... ..
8.6 Cost allocation in bid pricing;- the p(.lSI re.f')f!ll ,t().ry
8.6.1 The COS! caicullilion proCG'", ............................... ..
8.6.2 Determillation of Ihe ~.sage of .service lovdl ...... ..
8.63
8.6.4
8.7
N(.'goli.alion of transfer pl'icc, for support services_ ..
A critique of tho new bid (;(licllh1lioll proc.c.ss ................. ..
Chapter ,ummary . . ................................................. .
CHAPTER 9
. ................. 18.3
.." .. 183
...... 184
."." 185 .. 186
.. .............. 187
. .................. 18'1
.".".188
TAILOR MADE COST DATA FOR DECISION MAKING IN THE ERA OF MONOPOLY PROV1SION: THE CASE ,OF' WASTE SERVICES BIDDING
IN THE RESEARCHED ORGANISATION
9.1
9.2
93 9.3.1
IntroductiOon ....................................................................... .
Ihckg,[ClIJ nd 'Of the WaSle Serv ices bid ............................. ..
The rali,'Omlle for and "gain$1 tile Wa~!e $e.rviceg contmcling ....................... .
Tile ratiOonale for conlnlcl;ng ....... .
....... 191
192
.. 193
194 9.3.2 Tile mtiormlc against 'C'Ol1tWCtlllg .".'" ..... "."........... 195
9,4 The bidding proCI~SS ....... " .... '''. 197
9.4.1 ManagemenlllI1c1 plalll1iJ1gofth~) ill·llOuse bid ".............. .197
9.4.2 Specification ofsel'vices ilnd performance criteria 'd. " ................ 198
9.4.3 The r,equest for proposals .............. " ............................. " ............................................................ ".199
9AA Invitation to tenlier fOor tile service .......................... 201
9.4.5 Preparatioll 'Ofill-hOijse bid ......................... " .................................... " .......... 201
9.4.6 The cOII;ng of iI1"house bid ......................................... .
9.5 The debate aboul. the costing issues of the bids ................................... ..
9.5. Ii The 'soothing' review of Ihe costing calculati'Ons ... ..
9S2 A critique of the bid evaluatioIl ........ .
9.7
9.7.l
9:1.2
9.7.3
9.8
l·'"e. Waste Services ill cllpti,vity ......
Dis(;ussioOl of tile W.I,ste Services Bid ...
The argmnems lor contl'itcting ()ijl ............. .
The arguments. againsl contracting ·o~t ......
Tile rel1ecliol1 Oof lheory Oil Waste Services bidding.,
Chapter 'Summary ......... " .................................................. .
........................ 201
.. ............... 209
. ........... 211
.. ........ 214
d.'d 215
........ 217
........ 218
. ... 220
.... 221
..... 225
SHIFTING T1HE PARADI.GM: FRO,M "T AJLOR MADE' To 'STRATEGY DRIVEN' COST DATA INI T1HE BIDDING FOR LEI~SURE CENTRE
ACTIVmES OF THE COUNCIL.
III
lL2 llJ
lilA
11.5
CH,APT:ER 11
DIISCUSSION AND CONCLUSION
ix
TABLES
T,lhl!: Details..
11
Tank 4.2 COSI (.';ostiug."" ..
Tllblc 5..1 Cosl elememll i~ (:l:'Il'IInI(.:lillg OUl Cfl5es ...
Table 5.2 Addili[)llflll.ld.illMlmmt~ 10 be nmdc to iouem~l bid'i
TIlbl~ (i. I
Tahle 6.2 Qm!lil,a\iv~
Types
·bbl·e The
'r,lbic '7.1. Tile old hudgel
Table 8.1 Services c(')l'IlrIlcwd Q.lI! by area find tile reasons
Table 8.1. Li81 oi' O()~t drivel'S in the CounciL ................ .
Table.8.3 C[)SI hi 1111 ABC sy.stem ill the Cmlllci1
I~ble 9 . .2:
9.3 Names
Table 9.4 Ranking
the <;-<:.>mpetilive
llfllenlllii bidder~ (base-d 0.1 single-shih
Table 9.5 Ranking of 5 ('Illl.cnlilll bidder, (based 011 double-shift operation)
TallIe 9 .. 6 Summllry of the r~,Yi~w n~Il()j'ts by Cooper ,mel Lybmnll,
Tilble 9 . .7 Tile
98
Table 10.1 I'mviskxl
Table lO.2 IS->Ile~
COOpllJ' (Hid Lyllrand I'CPOI'\
in Ihe
Table 103 I'hnses ()fTc,nd(H' EVriluntiol'l process ............................. .
Table, 10.4 lPi~dillgs of III-t~. Tender Evaluatioll pro,'c» .................... .
. .............. 76
. ........... 102
.......................... 103
................................. 111
12
143
159
. ... 1'16
...... J79
207
.... 207
...... 212
............. , ........... .238
. ...... , ... ,. ...... 249
. .............. 25()
x
FIGURES
Figure
Figure 4, 1
~" •• "'.m' •• m."."' ••• "''''''' .. ''' ..... ,,, .. ,, ... ,, ... ,.,. , .. " .............................. m ..... Page Number
The i'I,clivily Based Co~t allocation process ." ... " .. "" .. , .... " .. " ....... "'".,, .. " .. " .. "''''',, ..... """,68
Figme 6.1 Time frame for data cOll~CtiOll , .................. " .. " .. ,", .. "." .... " ........... " .. " .. " ... " ...... " .. " .. , ... ,123
Figum 6.2 The analytic procedure used in the smdy " ... " .. "" .. , .... ,"", ... , .. "" .... , ..... "". """"."."",,,,,,,,,130
Figure 7, I TIle organisatil)>l strucmre of the CounciL"." ...
Figure 7,2 The budget process in the Council ... " .. " .... , .. " .. " .. " ... " ... " ..
Figure 7.3 Budget format at divisiol1allevel.." .. ,
Figure 7.4 Trends ill revenue sources 1988· '99
".,', .. , ... " .. " .... , .. ,', .. ,', .. ".,',." .. 138
"." ... ,,, . .\4\
............ 144
.......... ]45
Fignre 10" I TIle bid specificatiQIl process under tile new cOIltracting re,gime ... , ...... " .. " ... 236
1.1 BACKGROUND
CHAPTER 1 INTRODUCTION
OlJl$Qlltcing h~s I:!e~n !I widell), debaled issll~ in We~le:11'1 oolJotxie$. and ot:il<::! pllrlS of world
(Eismall, 1999; Cllnez ·e/ aL, 2000; DIlVis, 1992; Drtlna, 1994; ('moe, 2(Xll; Johnslone, 1999; Kee ef
al., 1997; Kee IIrId Matherly. 1996; McIvor,. 2000; McIvo! IIlId Humphreys, 2000; Sciulli, 1997;
Wicilln,ef IIrid Selln:J, 1999). It bl'.en widely Ilsed in fi.rms fQr century (ClIll!:Z
el aL, :1000; Gie:!zmallll, 1996; Mcivor !llld Humphreys, 2:000; M~~Iv(jr, 1997;. Ve,lIkatesall, 1992;
Z.ell(:r IJI al., 1999). OmsolJ.!cillll, or cOllttllctillg 0111, h~s different theoretical IIIHI
Ilml~rpillilillgs frmn Public
New Public Management theory,. bUI it has b~en1JSel(1 save cosls or for
al., 20(0).
Theory, ,llld
fellson. (Cal1~z et
devel!:l'pcll countries. The use of cOlllracling ill tIlesc cOlmtries is regul~.ted by dil'f~Je)1t govem.ment
policy i/,\licielines concermng COllie.stabHity, and decision-milkIng. These three aspects me
debated lmda 1t.hembric of public sector refonl1 in gene:!II.!.
P~hlic sector rel'orlll.% in difii:m:nl cOl.lntries lulVc been undertaken because of concerns the
a!l.d eft"eetivelle5s of govenune.n! servk.e (AllIIn and LlIwrenc~, 1994;
Blancl.lIlrcl el aL,. 1998; DombeIger, 1990; Hoque and Mall, 20m: Lane, 1997; Lapsley,I.992;
McCnl~. lInd Kaiil(mi.s., 1997; M<;Gulioch I1nd Ball, 1992; IiIJ:iramia, 1994; OBCl), 1997;
and G~elJ!er, 1993; SlIppanz, 1996). In Ille w!ike of theS12' cmll:ems, notable acti.I)IlS wen: l.akcl1
hy some cOllntries t;:'l improve tile of tile public sector (Wallna e/ (II., 1996)', These
refoml,~ were
l'efOnllS in somc of these cOlmlries wen:. \l11d(~1aken 11.1 llddress tile adnunistralive and financial
c.ite~i1i re:fOll:'ll'1S
(lbe '·W::~.I 0IJ'1ll,. o,lllel' cO!:llil.,o!l!an Ell1llpelllll cOllotriew
managemellt crises faced by the pllblic sec lor (Guthrie and Hlllllphry, 1996). While these reforms
were targeted to i111prOVe the efficiency and effectivell€t~s of public service production, the make up
of the public $~ctor in diffen:nt countries differed, and their roles ill the economy also differed. So
the reforms were approached in k('eeping with the structures of the public sectors til different
countries. The Atlstraliall pllblic sector also differs fTom that of other countries in ilS make up lind ill
the roles played in various jurisdictions. The outsourcing approach, ils costing. and the policy of
decision malting of local govemment bodies in Allstralia, are more exposed to Ihe cilizens than are
the other tiers of the govermnenL Otlier western cOllntries also experienced similar trends in Iheir
outsourcing practices_
1.2 STATEMENT OF RESEARCH PROBLEM
The cmrenl. research is aimed to explore outsollrcing ill the public :;ector conlext, and the role of
COSl allocation ill costing and pricing of competitive internal bids ill thaI context. Outsourcing or
contracting OUl as lUI organisational practice emerged in response to calls for improved service
delivery lind effideUl budget utilisation in the public sector organisations in,AIlSITaIill. In the wake
of shrinking revenlle base.s. the public sector generally, at)d, in partiClllar. Local GoVel'llillent ill
Austmlia, have "dopled various service delivery arrangements to minimise drainage of valuable
social resOllrces and to improve the efficiency of internal production costs. Col!lpetitive tenciering
,md contracting out or 'outsourcing', which descended mamly from the Wes(eTIl cOllntdes have had
a big impacl on service delivery Ilrrangements 011 local governmellt outsourcing prllCtice$ in
Australia (Paddon, 1993).
In tilio competitive tendering arid contracting process, mllnicipal cOllncils were asked to SCTIIlinis,e
the efficiency of S\'lrvices Ihot exceeded $2 million dollars in annual budgets. In the process, the
etllos of service provision changed from regnl.ated monopoly to competition over the Last one and a
halJ decades. Rather than using the leml 'olltsollrcing" the reforms intmdnced the cOllcepts of
sourcing (either fI:om i!1ternll.i orextemlll parties) from tile most efficient sonrces. 'Dus cllange in
service provision arrangements brought about some cllang~~ in the internal Accounting Infonnal:iotl
Systems, including management accollllting systeln~ (e.g., Walsh, 1995, p. 94). Mnnidpal coullcils
.introdlloed commerciul style acoounting for facilitatillg theil' SOIll'Cing decisions. III !his Accountillg
fuforrnation Systems change, overhead allocation caplilred signifiCatlt attention. Tilis ,change in
2
lackillg formal train.iJI.g ill financial m~nagemllflt, relled 011 the ,~p(lrtis:e of the [,CCOIl!l!lUlls li:lf cost
data (including allocated ov<::rhel\ds). Ill, the commercial accollnting (~nvi:mlUllerll, h()wever,
uverberu:1 allocatioll is:imq are wideJy debated for tliei.!' pllrp()$ef\l.lm'"~s il1 ded.si0l1 making. ~Jl(:J for
over a ,century, they were studied under the rubric ()l ',(lost "Ilocal.ion' fOi cOlTcclly detcnnillmg
'Call,!,e alld n:,;l.Illiollship betwclZ;11 costs!lnd Cl\1I,9,fcS uf CO~II::S (Ho:mgrell, 1995, p, 2.82).
Cost hitS he'cn considered perv~:ilive pr(lblem durmg Illst cell,IIlfY 1995,
p. 282). It is argued that too Illllch slIbjectivity in al.locilting cost dala make them u[]r~:Iiable and that
cosl aJlol:lItiol1, ~hollid be avoided (11Iomas, 1969). Even !his pn::scri.ption illfluential
acadel'ltia, KJral:tk:e suggested otherwise, A large body of lill:ll'lltllfl:l !:'1)ll11d evidellce that in pnlctice
thl:l academic prescription i:1 compIele1y igllored and OOS15 ar,e allocated 10 serve VI.\,riOIlS
orgml,$IllioIlR,1 purposes (Atkinson, 1987; Dean et tIl., 1991; I'regmall, !.Illd Lian, 1.981;
ClI" 1997; Zirnmennall, 1979,2()03).
Re:ile1lfCh has, focused (In cosl ulloc71Ii()11 ill 111111111faclurillg and sl:Irvice sectors, lIlld a1:lempll:ld to
e",~plofe I.he re,I.~~ cost aJlloccllti(111 from either teclmicaJ or behll.v.iolllra.l p()illt vie,w
(Bondar aild Lusk, 1977; Zimmerman, 1979), 'Il1ere is little research on cost IIllocation pracl.ices in
soctor (see for eXl1rnple, Bourn ill,1] EZZlimmei, Chilli, 1995; Dent,!.991).
These sfmiies are '"".''''0'1''''' evidellccC. Olle of tlleir Jil'llillllirlns is thllt they have commercial
seetor princi.ples 10 the public sect(lf. Tiemey (1,994) arg~ed Ihat prinl4l $~cl(lr "_·''''''LI''UI'~ prindllle;$
lire clClldy 110! Ilpplicable to lhe govemmelll sector beClillse of cOl'ltext\lal and strllctural differecllces
betw,eel1 them, HowllVlsr, !he A.ustralilill practice rejocted Ihis u:g;llmcIII,. illld the
propositions of Tierney in the belief tbat public lind the privatI: sector h~.ve sh'uci:lIt11I11.1I(1 comextllal
similarities. Therefore, ItCe(lul1.tinll principles ue equally ll.PI)JIC:ll.n:lle
organisations (Hendersoll and Pierson, 2000, pc. 839),
1110ugh tile earlier studies on C(l$! allocati{)D Wl~re undel.1akell i:.n differe!lt contexts, thl:, uses cost
11I1ocatio!l appeal'oo to be similar ill publjc or private SI~tll.)I:S, 11!ose studies Wl~r'c abridged versions
of the surveys and little bas been done to .asc,e:rlllill the deliliiled prOCe:ilSC$ (If
the usage of cost allocation in pricing, reimbufs,ing of funds, or motivating behaviours of m'lIlllgers.
This study .is aimed to fitl the gap in the Iiooralure, atld attempls to sllldya parl.icu.1ar use of cost
alloclItnol! in II public sector selling. An Auslralia:n public sectol' City Council has boon chosell to
study how COSl allocation is u&cd ill making Oliisourcing decisions,
1J RATIONALE OF THE STUDY
It is argued in the Literature that the private &eCIOI' is more efficient lind effective in utilising the
reS!)llrces at theil' disposal than Ihe public sector, which is inefficient ami expensive ill providing
goods and services to consumers (Osborne alld GaeMer, 1993). 11IIS long-standing llotion has
recelltly been challenged by the seminal work of Osborne 1mll Gaebler (1993). The causes illld
consequences of the inefficiem and ineffective usage of resouvces are well docllmented by some
allthors" illld remedial mea~ures to overcome them have been proposed, As a result variotls
initiatives have be.en taken in different countries to revamp the operatiollal ,lSpects of lhe public
sector (s,ce for example .. Wimna el aL" 1996), It been Sliggested that the mallagemellt style of public
sc,clor organisations shouM be changed simultanoously to address the perform/mee problems of the
public sector organisations. Some alternative models are suggested to reflect Ihe private s,ect('f ,ethos
in the public sector organisations"
Following the wave of changes through various government-led initiatives in the public sector
arena" Australian public sector entities also wen! through similar chang'es. TillS research specifically
explore~ the accol.lnting change issu("~ in one of Ihe public sector City COllncils ill the Australian
state of New South Wales. Before commencillg this resean:h, ten city councils were approached for
access" Only two responses were received, Olle was visited., but the dala,provedillsllflkientfor this
research project Tile other City Council aHoweod llCCesS and the C()lIecl~()n of data from their
archives, and from departmelltal mallagers, directors and other staff membe($. Befor·e seriollsly
<'nterillg In!O the research assignmellt, preli.mi.nar)' meeti.ngs were neJdwitll Ihe Fillancial. Services
MiUlager and the Managemellt Accoolltanl of the organisation to explore the possibility of
co.llecling data. 111e site seemed a peefecl one for studying the research problem, and it was also
found that they \w;re undergoillg massive reform as part oftheir ongoing reform of organisational
SIl"Ucture and the Accounting Informatioll Systems. The org"ullSatlQll also alhlwed access to si:tldy
the accounting changes phenome!loll involving their outsourcing practioes.
4
THE
where /he ()!lL~llllrcillg
phtllomenon.,
witNIl iii holistic
illlhis n~slll\rch: why
d., What differtnt
THE 5'TUDY
il
were 111 ade..ln$l.ead I)f COH$id elil1i
".~, .... _, ... _ as:pecbl
isolated
dedskms
is dcme (Ihe policy a.~pe,c( Ill' nrglillima.ticmal ()1118Q\!I,~illg), /Iud how
are prev!llelli ill
10
prepare Iht illtemal bid for """.1U1~"'~C" ,,;; a, }[ow
b. How the Cc.tl!1cil tleat (Y\lerhclld,~ (including inl,enllll U'llIlsfllr prke~) ill pricing thc
ill
ii, How did the Council solve Ilu: dHemmaoi" aI!ocatillg joint c:oslsil1 tile pre.sclIce, of
of~ervices ?
'!11ese qIH~,sti(lll~ will be addressed ill jj gill, of the r,esealeh 10 (Iale in mllll.uftl,clllring and
BeClIl:lSe the C'II'l:ISs·disdplil1:lil)'
!11~,ore:I:IC"!I[ perspecti lies wlll be llsed t(1 Illroers1:and and
of the resean;ll qll!:sti.ul1,~, diffen:1l1
tire !e~elucl:l questions, 'The til[St
policy is widely n~searched ill economics IIl1d pllblic admillistl'atioll, Chapter:2 discusses
these strands of re.>ean;:i1 aud guides the: explanation !Iud lIm!lyses of it 'nle secolld is a
",,,I,,,,,,,,,I;"',~'m one, and rcc!::1'l1 IIccoulltini!!: literatme the process. ilSpecl of IJ'Wl>IJILln;m" will
1Ulalysis and prov ide for iL In understanding the second ex:hall,stlve
reviews WGre mnsidered n(~cess:lil)'; 3 anel 4 shed li.ghl 011 Ihe pr()\~ and cons of cOlllmon
C()Sl aUoc~(llio.l1, Chapler 3 and 4 an), ill facl~ complelll~"I1l.lI.ry, and lUltl considered necessary 10
''''''~I'r'W:~.ll~,plllfl:Jd ill tile n:se:oU1C1I ~lnesliol1s. I() t:ile develop.lIlelll of ,/I
conceptual framework by integrating tile theories and evide!]ce pres,ellted in Chapters 2, and 4,
This !;()!1(.:epILlalisalilm necess.ary because of the type. of the research problem. TIl,l'l[e are. SWOIl!!,
argument;! f(lr lilllllysing cnse study evidence, \lsing II c!)I'I~:epr\lai framew(l:!k when II single tileory is
r,esclln:h phl~n()<ml~.!1l1l1.lId;cr illves!ig~tioll (KmrulJI', 11996, p, 32;
and RCISS1U:In,1999; MII);:welJ, 1996, p, Kumar (1996, p. 32) states "the cO!lceptlllll framework
research
L5 THE J USnPI(:ATIONS FOR SELECTING THE SITE
Suthcrland Shire COl.lm.:il in New SOllth WilleS, AllstrllUl1 was selected the representative public
seelor eilliry that had tJle sll.ilable attributes identifted illihis sl~dy,111C m.ll.ill reasonsfo! choosing it
:&~g,njfi"canc,e t]-lIe Council pion:e,er in :$el(;:'lor ]~tt"actice AtlSJUl'atlit?l",1
the sHe, the relevlllu:!l of Ihe interdisciplinary theo,ries (ecomlillics, public
adm,il1jsillltlon illld IlW.Ulagt~ment accountil1g and finam:ill! 111<lllagemel1l) for t:he study of the I'es,earch
1l1e justiflcll:!~(')!!S lIre di,eussejj below,
6
L5J THE
dIll enlitt popl.l.i,ll:ticoll living with'!'ll n:sille,lll,$" EVIl!l
peJl1ceiveI:1 to 'i 1>1.1'''''1''''''1 in "nj,'lfullnll1 aU Ihe social ~lId wl'l'IlIIu.md 111I1iIJn'i111:'II,
Il,I,'e tOq few (~(:Imp.tll'(~d the
State Govemlllell! s)" Due 1(1
when
Accon:llngly,
ll:llture
e)l;,perielltIJd cOllipleli!.:ivl:
lh
fiMpecially, for
Fell!' COI'\I'idl,l:nllllIIi
re,,~lric! aCJ.:.I:SS 10
firs I
~ilelClil1g Ihis
Illmlllll:
of tll,e Allst:ralian public
fllnding cl'bes (Kl.ldrZyd:.i,
Ibey
sUI1."olmdi,llg tiJei:r oos', 11l.l.OClItioll
1998 fx"oro the field"
tbe
metll:()do\og)" bUI
M!)l!ritzllll, 1992), and
Ullll.iIl,H'l',S 10
!I11:ll:XI~e,ln,elly confident.!:d
thai
51!;!Iifll:auI::e to the
~llld,ioo"
thelll.rges I d 1:)" cOlillci Is ill !1~;1'111.s served and
reforms and i!ll:rodl~cillg contractillg out ill A!lslt:~Jja. Th!:i:d, durillg the till1.a COll~CI:l.()n
I W:I~ located ill Sydlley and aMe w visit the site for data colll!ction for this research
LaSI.!y, my s~lperviso[ advised me to visit the site as the city Coullcil had a v~;ry rich J\'jl1.a.rlt~i!lij
rnanagl:menl Slmcmre that pO!,enl:ially illcl.lII:1r,d ;ill the c\)mplexlI:ltdbutes of the H;;s,earch
Fimuldal Services
wa~ in May 1998. A letter was scnt describinlil til!: MlUIe of the research pr()jfJCi a.!lct
dllHI to be coll.ected. The Finance sought appwval f'!"(Jm tile President of the City Council.
Altei:!' r,ecIlipl. of confll1:natioll, a series of emails were exclianged with the malltager who ()rganised a
sed!~;~ of interviews, vallilable. internal mall!lgemenl r~)PQ.11$ alollg with other archiv/II
Tw() deparlrm:llts with sig;lI.itican1. budgets wexe
<:1):~lInc1ting P[~iCtice$ in difl'erell1: periods of
the C()Ullci.I, T1le fin!!
when the services were
lasted ulltil I 995 alld W,IS c Ilaracterised by
lIml protected by u:,cal GovernmellT Act oj 1993 .. 'l'hc
second period was after 1995, which was a major tnmsitioll poinl as the COllncil embraced
cOIIipetitiollt ill some of its services and diviskJllS. Tlle.se cover ten years of operational
of Ihc COllncil. By !h(~ mllllr~ of Ihe study, this will be ai:l::)llgiludiIlal onc of Ihe OI.II.SOIll"GIllg
allocalil)IJphemllnelloll,
THE SIGNIFICANCE OF [,OCAL GOVERNMEN'rS INTHE
AUSTRALIAN PUBLIC SECTOR
Depe,mJing on their location !md the legislation of the silltes, ()::mnclls provide a range of services
from water supply, electricity, sewerage, and wllm~ collection, 10 j:l~hlic health
Though Ihc t\Vo tiers of governments h~ve ()verseewg responsibility the
@11'''':nI1.m~:nI bodies, plllt in allY direct provision .. As <I cOllseqllellce,.
exist.s betwe,c:1l Ihe dty cOllncils ami l"lOp'"lations ul1lder their .illri$dictil)l!,
III I,he services, local C(:'l.l.Ildl.$ rely 011 fulltdilltg £r'I>111 d;jm~ml1t smm:es.
In of sources of revemles, the I.ocul governments receiv(~ II .liion' $ shUle (thaI is, 40 .. 50':1!J) of the
b\idg\~t III the fmm of grant~ and loans from the Federlll XIII!.! Stale govefl1!'llelltl'. Alter tile
illtr'lduclloll of pllblic 3,ectof reforms in AIl$~:1I1ia ill Ih!l late 1990s, Fed~ll:illlllld Slim: goVetlllllems
reduced Ihe level of fu,l]ding to the localgovemment bodies IlIld illsisilldlhe,y be self-sufficient iiI
gelleratillg cIHIlIgh revenue to Ineel tile expenditures. ]llis follows sinnlar Inll1ds ove:l'se:as
(Kodirzycki, Mouril.zell,1992),
1.1 THEORETICAL APPROPRIATENESS OF THE STUDY
All illierdisciplixiury perspective has been adopted to explore Ihe research qUestiOll$ jlosed above.
Th.I.'!I'e IIIe few re,ISOIlS adopting :s:uch perspecti lie .. Fin I .an, this 311ldy ba~ed ()II the
tllill private sector ~c,ctmlltil)g principil.:s are equally ill public $I~cmr
orgaru.sati()IlS. $e>CO!ld, contracting Illt:Ol"ies us,.,d in economics IlIld public lldllllinistl'litioll Ii!etllture
are· u~ed before IIcl1lally discussing the cosl I!$pects of IltcOtmting fol' cO!lt.r~tli!lg out 111i8 position
has h!l!:nlakcn because of file rectml emergence of aocollnting- based decision m()dels in cotltm(:.ting
out dedsiollll. Third, the outsOllfr.lllg deciliio'll making fi::ame,worli:. ha.s developed
the Lile.ralure Oil olltsourcillg theory IlIld practice, and the cost allocation. processe;; ill two diffe.rent
because neither of the theories was decemed suff'lciem IQ evalllate the oulsourC\lng deci~j(m process.
Kllmar (1996) and Mali.well (1996) iIlgue thai. reseru:dl pmbJems through a cO!1ceptulll
f'rruJ:lllwor!, strengthe!1S tJ:I~~ validity of findi.n.gli, Some assumptiolls are made to study the re,>~al'l;h
prob.lems pos(~d ill tllis re,~eareh pnlject FirS!, Ihis sl:lldy assum!~s that sec!\?r accounting
,'''''''''''1,'''''''' and ru:e easily transferable, to resto'Ie the public seclol: financial llumagemllll!
pmble-rns. Oth,en, lIfg\le pri"3Ie SI:CW( ~cc()l~ntil1g a!.yplieable public
ll$ the (lI:garusalitlnal and Ctllllextlll.!I factors differ between. th~oSe 8,I!C,lors (Tierney, J 994). Howev!:!',
there abo a OOlmtel' IIrgumelll Ih~1 the plival.e !lI1d !:he pllblij~~ se,cltat:S OCCOllll1lillg
proble!lns tllat call. be resolved private seclor accQunting (Henderson lmd Pierson,
2()(X), p, 839), Tilis latter lI~gll.lllellt has beell reece.nlty adopted in the AuslnIilw financial report.ill!!
of heritage lISset~ has been the sllhstwc:e Qf the debate .. SI:CQl)d, the
resea!'cl:i problem req\liH~:S $I)me discussiolJ OfC()llliracling out from the perspectives of c>COl1()misrs
lind IllilnillislirlllOfS beeall.l<Il COlllrlil!(:ting Ollt hM been widely rel>earclied ill
admlr(!dr:atiou am:! public: econQlnics research, Ilerate the research problem, therefor'c, a
brief disCIlSJlioll theories \ ... m be lleces.sal:Y, Miralldll (1994, pp.. llrglled
9
contracting (Jut over
accou,ntams
allocation and
!he nature of !he
were hardly snulied. The:riefon:, rU(lre stlldy sholl1d be done by
literature. Thil'd, 1l"e ' . .m":l'I:I"J"'" Imd leehniclliliteranm: all
C('llll'acling Olll (rn1lik.e approprilIle.
The meore'tlcal Bterlilure ~lIocati(Jn is a.ppmprillte
because of the debate sUrI'Oundi.ng allocation during !he ia.st C,evll!llry (Hml1gnl11, 1995; 'I1lOmas,
1969). Some argue thai al.lOCIltioll Ill.illJcads decision-mllldng (ll!llrJl.IJ,s, 1%9; Wells., 1978), whHe
mllers l\rglle !hat it is pnlel.ieed b<~JCtIIlSe ()f its usefuliless (BlallCbu.rd amI Ch()w, 1983: Zimmerman,
J 979). The le'chnic,ll jitel'a!1.I.re f()U()ws the !heoreticaX Iitel1'l111rtl on cost 1IIIoc.(lti()n, anclj! deals with
the, pwcess of C()S! allocation in differenl. sil.l.Iati()n.s,
AN OVERVIEW OPTHE MAJOR FINDINGS
in
:site level, ,ue 3mnmllrbed
OIII&()UJ:cillg is i.1 c()mpl~,x m,1iJ111gement df.cisi()!l process tila! input fwm acco1.lnta!lt~.
.However, small donal" vil!ue itelll,~ or 1\()!H1l:ctm'illlgservices call be Olll:sO!lrocd Witi1()ut having U.l g()
Ih.wtlgh rigom\l~ (.$ecisiOiI-maki.llg proc(:ss. The wlc ()f accmmtanls in ()lltsol.ll'Cing sue.1I services is
nol very vital, IJIOUgIJ 1m of the service.s lIla), be l1ec'C\sswy, ()f
services 111)\ bnl documenled at level where manllge.rs
~ de:tell tralis,ed
pulls in a signilkillli
lllllkilig 1I1lti1(Jrity.. Hmvellcw,
i,~su cs from a ·C[{l$.~
large doUru- budge!
orgal1isatioll swilled. A
dociaiolll pwces.s. IS i!lIl()III~J(j ~I!d requires inputs from tile mllj.o! $.li1keholders. III additi()11 tl) C()sts,
qualitati.ve [aCI()rS have m,lljor l'allliftcatimlS ()!1 the ()utsollrcing ,:,fth(~ services. In the deds.ioll
m~ki.ng pnlcess, market the Intemal expertise, effoct, and C()st calculations,.
along witl! the ()lIcrall administration lind monitoring ()f !he sCfvi,:ell, al'C key d(;cision :variables. It
w~s also found tllat the oxganisation used ils pas! experience as 1I guide t() future Olllsom1l:ing (if
scrvic.es. The sOllrcing of the $er~ice.s in !he reooru-ched rep$esented by two
Il",:,vle.m'.;al' and diSC1,l.C!sed belolll', thai tlJe (Irgllll.isatiOIl e,xperiel1ced
bases alld internal the needs the
community. The C IHa.lys Is., the Local Govemmi!111 1993, the Nal:i()ual
',.'.'!I.IlJ"mn"" I'olicy ami tile Aus,tr:aliilll Accounting Standard 27, have significantly influenced the
The
c,()ltrlpel.il$()ill,
II
i!lforn.II.llOU ,system In fbe wake of
tbe
(dull is, accrual ""'.VU'."".I,II
Ih~llhe {)rl;l;ani,$atioll used ovedl!:lId ",II~I'''''Ii,l.I.JlI
~tthe
open mlukel, I.est.ing ,mdior Il(\!l,clll.!l'l!lrkl The lJv<::',ralJ. positioll ill re:~;~Jd
IN as il1 tmdllced ill
pher)o,mel1CI)1 lifter the
planned I'm: <Ie fIIJJ-f1edg",j
learlled laler Ihallhe ClJlmc.i.1 '-'''1''''''''''''''_'''''
organisation l'oUo,\r(:d the t!~~I'jII.lIIIJ'~ rationalists' view (the repl,ica!..ion
i.1l refm:m~. the ()fI:lIIllISllla:1
pract1ce of New 1111bUc Mllnagl~me,ll! dor;trin(l$ that descem:led fnlln Pllblic Ch(>ic~l:
tlioory,
1.1
aiiocal,lon
II was
Tn this
(:ompctjcors. ThouI'll !Ius slance was k,ept confidential, the:re were allegations from potential hidder!\
l\boUl mallipul~ltj()1I of cost data, whit\ll followed a very rigid wnUell COlltl:lICI spedf1cat:io'll. In
addition !o u~;es of cos! alk"::,R'[lOI'l 10 reduce other inefficieneif~1 revea led fWIll
thaI tile iJltl:';mlll
"I,chi,eve 111lUlm'llll'l reduction ill COSIS,
1.9 LIMITATIONS OF THE STUDY
The study
of
Secondly, only
in few respe(;I$,
rc"se:arcll ,
of all, lrus is qualillitive case smdy" which lacks the
il is a smdy 'p:utic!!lu' (SI,u,e, 1995) conlllxt
IilUls of analysis were Ilsed In ge;llt~rlllt~e about the research iSS!!I"'~" fronl speciiic
to generaL Eve,ll (h,()lIgh d:ltu from o!h~,1' p:U"lS of th" org:luuslIl:k'll were collected, more data abou1
the bids wOllld have. m~de Ihe internal validity stronger, Bef()r(~, ellgagillg ill the resean;h project, tltis
was the sponsor. spl.:ms:or lI$Sllfed thlll!he rescucile!\l would
some lor OI1[smm::,ing :al1d o~gllL!USllli('ll' O"leri!clld
allocation, The procl:dllfes were in fw::t in progress whelilhe (Iall! collectioll for thL\) research project
was finished. It was al,o cOllflllned recently thai the org!lnisatioll standardi$,e,l i~~ outsOlIn;il1g
policies,
o SUMMAJ~ Y OF CHAP'rERS
This section provides a summary of the .!ese:l.rcil project by EarlieI' in thb chapter, scene,s
have been $,el. the re:s,earch and it lias been imiicll~ed III:lt the belween
1Ic:.cmmtillg and (YI;@,lIl1lsal:ion will be, exph.~n:d, Though s!l.ldy of this natnre luIS be<!;11 cliti,eised (e,lih
J::.l;r,anUIlI:I, 1987), Ithe (l'l'i.denc~~ th:ll
itJil1,hly ililemal managellllJll.1 reports wilru.!1 tllit ()rganisalioool and leave Ihe
broader socilll conteJU 01lt of the pictll,!'I:, 'nlis was lIltributable 10 the fact Ihlll Ihe, l:nmsformatioJ'l
pmce1;s wilhill th~~ Council, like other public sector org!l.llis:llll)J'Js ill. Auslrilllll, WIIS ill :l n,ascent
slage, This rellealed at the time dis(:lIssing the re8ell.rch issne with the project spollsor, and
relljew
The outsollfci 11!~ litfnlure is disc!!ss(~d in Chapter 2 liS olle of the theoretical ["Of the study of
tile: resellrch In the outsourcing isslIe.!, tlle theoretical persprA:tive, and the
12
ui.ol1e is Ihe, dm:m,llllll.1 ,:dt~Jill, Tile AlistraIiall evidl~llce
oOnformed 10 il1lllr1H1IIOllfl.1 the, dOrll.inam. fllliollaJCl, 1':he studies were
New Public Malllll~emt;nl:
ill
Cbapler :3 illl:rodl.H:,e:s til(l
vCln~idernd
intlllnal bid pricll
o,\!~,dle!!d allocation
dllll'"
'~1!l11
,-,1 dllcisilJll
C' i"M'rl! 11:[
(:I~\11C,epl$ IIbou! com.mon cost II.llo'~~lj(l!1
of 11'11:1::1'1111.1:
in favollr of el\j~til1g
the llIglllmell1:S for lind il.l'gllmel1is
lIIIIaI::J!l110l1, The S\lcc'~!sor traditional c()stillg, Activity BlIS~,,1
t:r Il!lll1lii ABC ""'1,"'11.'"'' .:LlIti.OI:IShip, .It
jJl'l"!lillOnllll'lt%,
1<:11''''''1111 .. ' ''' in
11l1d ,:nmrrlil:ldw sectors. l.t. 1I.I&o 5,l:l'lIeS
Ih:,m
allocalioll is
(AIl C) has b~eCll discussed
effect
pll rpOIlIJ,!J,
exlj~;mal
e~~pllli:n
lin
IlrtlgTiilll
dem.ill1ded of traditional
study !i.lIdjllglli. The conceptl.lill frllmework of
and analyse data,. Illld finaIly III mll.ke,
gather
berel1. !I.sed to IUlalyse lIud I:llitke
4. Thus, it is the
initlfl:llves wliert
This siudy
phase, Ihe
the Cll~~e
Chaplers 7 and. 8 are Ihe flrSI Iwo cl'lllp~.ers tllat disCIISS tile general 1lSpi:';Cl~ of the Council. In
Chapter 7 tile structure, of the its Iransformlltiolls. ilnd reli()u!'(:es allociltion systems
lIFe a:s II pretext fm lnl1"o<lllcillg the r,eSOIl[Ce ajkJclltiol) tile pre lind posl
reform t':f!lS. Chllpler 8 tuem the issnes rlise.d in Chapter further by fOcu.8sing: on the mcc.lllmics of
ros0urce, ~Uoclliiolllllld Il1e,ir use for vm:'lous organis.ational plll;pl~se5. It was r(lI'ealed tlmt the bndget
acted Ihe bub f(l[ !I,ll of tlre activities ill. the Council. Budget~ and their uses in c(l!l!rollillg
oflllmi;slitional reSOUI'ce:il disGussed bel:o~e the p~ bllc refOflll.5. thaI n.c,·_,','·,·ne,"
the budgets were ~$ed as a cos! CDlllIDl (Dtll. After the introdllction of public sector reforms ! 995
a new budget format WI:IS introduced in the Coullcii. III this new fOrmlli!. the service
aspects) wele flom deti8i~)ns (the fund.ing This
for Ihe
costing informatiofJ for VIII·jOIlS organislI:ti.onal purposes sllchas sourtillg d(~i~it)lls, bcn.duml!:king
al!.(! s~lbsidy delerlllination, At the time. of gathering datIl lOr tms research project the organisation
GI,)I1Il'lICled () ij t one of i 1$
internal t)!tllunisatioll
the orgllll:isatiol].
services an internal The three··yeilr contract with this
was Iffl;st case f(lf Ihe othcr major t:llIll:kel Ie.~!ill!l of
franu:;woll'li: dcvcloped in Chllpter 5 and th.e disc!l.ssi,m. ill CIl aple;r 2. 111.~. iil.·gumellt~ for and
Ille lenderillg exercise c1e~dy conformed to sim.ilar trends oV'erseas. Some,:, of tile
afgum(~t:lts for and were, however, to the F.inally, the internal price
11111,'1 eu.mllled in the light research Il:l Ihal dale (tllat e.::onomk ~[be.
cOllclusion reached ill !he: chapter suggests (l1al the organill!ltil111 did llOt giVll adequate cQIIsidtITI1ticm
to nther important isslles aUecting the decision. The H::·examinalion of tile bid unleashed some
major concepru.al flaws tn tile COSI (;lIlcllllIIlon assU111:plioIlS. "nlese Haws were s\lb~,eqllently
di,soovued lIlld the 0111:s0lllce proved 111e mistake, the deci.~iolll II.
huge penalty (Ill the COll.llCi!; l.he L~ul1ci.l had to interllllli$,e the services alter ~ll agreeIIle,ll.i WIlS
reache,d with the contractor. This parlicll!!i.r instance of c!l'mpetitive
mlilly (:oundls in AUSIi:!l,lia fo!' a long Ii.me,
li:lt CIH1Ill.er 10 the ()(.llll!::lC!lllg isslles resurfaced in Ih~; Wilke of public S!lclor .reforms ill. iocRI
gO'lenl!11I::lllS. In light of past experience,s and lessons Ji:(ll.ll past mistakes., the Council n:lh~d on its
15
in-house expertise ,0 organise ille entire bidding process. This particular bidding was arranged in tile
light of the changes ill the org~1nisational structure followed by the accounting information systems
changes. The overhead allocati.on isslle received prominence in this new bidding exercise. l11011gh
th,: management process of the bidding went very well, the outcome of the bid did not r·eflecl on the
efficiency of the internal provision of!he services,. tile .accuracy of cost calculation, and [many, Ihe
accuracy of the decision. The internal bid price was, thus, perceived as under oosted and had 'low
balling' tendency in it The potential bidders alleged illa! the Coullcillors had favoured the in-house
bid.
Chapter 11 summlllise;,; the major findings Iwm the field and ,compares the findings to extant
theory on outsourdng (CIl apler 2), ()verhead allocation (Chapters 3 and 4) IlJ1d finally the
COllcepiual framework developed ill Chapter 5. The finill section of the chapter attempts to
gencralise the ilndings of the kley resear,ch queslionsintroduced in Chaptcr J, The study concludes
by proposing that a conceptual blend ()f theories from differellt disciplines may be a useful way to
understand the intcm~lations amon,g outsourcing, ()verhead allocation, the internal bid pricing in a
competitive tcnderillg and contnlcling ex'ercise, and finally the outsourcing decisiolls ill public
sector organisations.
16