Ahmed Rafiuddin

Competitive Bidding and Outsourcing Decisions

Ahmed Rafiuddin

Competitiv,e Bidding and Outsourcing

Decisions

Principles, Methods, Practices

VDM Verlag Dr. Muller

Imprint

Bibliograpl1k infmmation by the G~!rrmln National publicatiol1.l:lt th(! German Nation,'ll Bibliography; on the Intern!,!t at http:Hdnb,d-nb.de.

The German National Library lists this bibliographic infofll"Hl1ion is available

Any bn:md names and pr()duct. Ilam(!s mentioned in this bOIJk are subject to i,flldemilrk, brand Of patel11 p'rot(~dion and are ITaclcemlll'k,$ or registered trlldt!marks 01 their holders, The use of br.a,nd nllme:>, produc~ nill1l'I"!:>" common names", tnule nl:lmes, product etc ellen without il p'articular in this worlG is in no w,~y to be ,constnl,ed 10 rn~!,l:ln tha,t such

be as unrestricted in respect of tradem.lrkand brand protl!cl.illn Ilsed by .anyom!.

Cover image: VII'WW,purestodo:"c!)m,

Published zooa Saarbrud::en

P<lblisher: VDM Dr, MUlier Aktiengesells:chaft /1; Co. KG, Dudw(~ler Landslr. 125 a, 66123 Germany, Pilone +49 681 9100-698, Fax +49 681 9100-986, Email: info@vdm-v.erlag.de zugl.: Wol!longong, University of Wollongong, PhD thesis, 200S

Produced ill Germany by: Reha GillON, Dudweilerstra.sse 72, 0'·66111 Saarbriid:en Schaltung5diens;t o.H.G., Zehrensdorfer Str. 11 122"17 Berlin" Germany Books on D'ermllld 53, 22848 Norderstedt, Germany

Impressum

In/ormation def rJeuts(:hen NationaUlibliothek: Di,e Deutsche Nationalbibliothel< dies!! PUblikation in def Deut.schen Nationalbibliografie; detaillierte

Dalen sil~d im Internel Gber hUp:Jldni:J.d-nb,de abrufba(, Aile in diesli!'m Budl Marken Ill1ld Produklnilmll'n

marken' oder Schutz bzw. sind W.arel1zeichel1 odef def jeweiligen Inhaber. Die von Marken, Produktnamen, Handelsnarmm" Warenbezekhnungen u.s.w, in die~em Werk berechtigt aweh ohne b~!s,ondere Kennzeichnung oiehl zu der Annahm(!, dass seiche Namen im Sinne def Warenzekhen- und Markenschullgeset1.g,ebung als frei' lU betrachten wiiren unO' daher \fon jedermann benulzt werden cluthen,

Erscheinungsjahr: 2008 Erscheimmgsort: Saarbrikken

Verllag: VDM Verllag Dr. MOiler Akti~!ngesellschalt & Co. KG" Dudweiler landstr, 125 <1, D- 66123 Sa"lrbrliden, Tei.efon +49681 9100-698, TeMax ,t49 681 9100-91l8, Email: il1fo@lIdm-verlag.de Zug!.: Wo,IIIJ,ngOl1g, Unii1l"!!fsity of Wolj,ong.ongi, IPhD thesis, 201)5,

Herstellung in Oeutschl.and: Schaltungsdienst umge o.H.G., Zehrel1$dorler Str, 11, D,,12277 B,e,riil1 800ks on Demand GmbH, Gutenbergril1lg 53, D-22848 Norderstedt .Reha GmbH, Dudweilerstrasse 72, [)·661111 Saarbrud,en

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