O Toole and Meier (2004)

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Parkinson's Law and the New Public Management? Contracting Determinants and Service-
Quality Consequences in Public Education
Author(s): Laurence J. O'Toole, Jr. and Kenneth J. Meier
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Source: Public Administration Review, Vol. 64, No. 3 (May - Jun., 2004), pp. 342-352
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Laurence J. O'Toole, Jr. 
University of Georgia 
Kenneth J. Meier 
Texas A&M University 
Parkinson's Law and the New Public Management? 
Contracting Determinants and Service-Quality 
Consequences in Public Education 
Why is contracting used more frequently under some circumstances than others? What is its im- 
pact on spending for core mission and on service quality? These questions are explored with data 
from more than 1,000 Texas school districts. The evidence for a recent three-year period shows 
that contracting is negatively related to spending on school districts' central task and is not posi- 
tively associated with district performance. Why, then, do districts contract? While several vari- 
ables are associated with the degree of contracting, the most interesting is the relative size of a 
district's bureaucratic staff. Furthermore, the relationship between contracting and bureaucracy is 
reciprocal: Each is associated with subsequent growth in the other. The dynamic suggests an 
updated version of Parkinson's law. These findings indicate the need for researchers to probe the 
causes and consequences of contracting more thooughly to help public managers assess this 
important option. 
Government contracting has been one of the most im- 
portant public management trends of the last generation, 
both in the United States and in many other parts of the 
world. More governments contract, governments contract 
for more goods and services, and a larger portion of gov- 
ernment budgets are allocated to contracted arrangements 
than ever before. 
These trends have been encouraged by many forces, 
including pressures for budget cutting, marketing by ven- 
dors, and-not least-the emergence of ideas and theories 
about how best to organize for the provision of goods and 
services from government. For instance, the New Public 
Management, as a way of thinking about the subject, has 
stimulated reforms in governments across many parts of 
the globe (Pollitt and Bouckaert 2000). Not all forms of 
contracting fit the New Public Management approach, but 
such advocacy has reached specialties such as public edu- 
cation (Scherrens 1999 emphasizes educational support 
services and links to performance). Public choice, princi- 
pal-agent, property rights, and other associated theories 
have offered the most fundamental intellectual justifica- 
tions for privatization and contracting initiatives. And, of 
course, ideological arguments have provided further en- 
couragement. 
The theoretical arguments for contracting and privatiza- 
tion are intriguing, but they must be tested against system- 
atic evidence. The last several years have seen numerous 
empirical studies of these phenomena, most frequently with 
an emphasis on cost. The evidence on contracting is com- 
plex but suggests the possibility of cost savings, at least 
Laurence J. O'Toole, Jr. is the Margaret Hughes and Robert T. Golembiewski 
Professor of Public Administration and head of the Department of Public 
Administration and Policy, School of Public and International Affairs, the 
University of Georgia. His research interests include policy implementation, 
public management in complex institutional settings, modeling the impact of 
public management on public program performance, and the management 
of contracting and privatization. E-mail: cmsotool@uga.edu. 
Kenneth J. Meier is the Charles Puryear Professor of Liberal Arts and profes- 
sor of political science at Texas A&M University. He also holds the Sara 
Lindsey Chair in Government in the George Bush School of Government and 
Public Service at Texas A&M. He is pursuing two major research agendas. 
One examines questions of race, gender, and ethnicity and public policy. 
The second (which includes this article) builds and tests an empirical theory 
of public management, which he plans to then use to conquer political sci- 
ence. E-mail: kmeier@politics. tamu.edu. 
342 Public Administration Review * May/June 2004, Vol. 64, No. 3 
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under some circumstances. Much less frequently exam- 
ined, however, is the related question of service quality, 
despite the fact that the theoretical arguments also tout the 
prospect of positive impacts here. Is contracting associ- 
ated with improvements in service quality? 
Another issue that researchers have not addressed suffi- 
ciently thus far has to do with the determinants of con- 
tracting. While some studies have probed decision mak- 
ers' rationales for making the choice to contract, only a 
limited amount of work has tried to explain systematically 
why contracting is used more frequently under some cir- 
cumstances than under others (Stein 1990, 1993). 
Both issues are obviously of critical concern for public 
administrators. Costs and service quality are matters of high 
salience, and administrators need to be aware of the re- 
sults that may follow from the contracting decisions of their 
agencies and jurisdictions. Knowing that certain circum- 
stances or conditions tend to encourage more contracting 
can be useful information as administrators anticipate their 
own environments and the pressures to alter service-deliv- 
ery patterns. 
These two items-exploring the results of contracting 
and investigating the determinants of contracting-frame 
the study reported in this article. Through a systematic 
analysis of more than a thousand jurisdictions providing a 
similar service-public education-we probe for answers 
to these important but underexamined questions. The next 
section frames this research in the broader context of con- 
tracting, privatization, and the current state of the field. 
Then the research questions are developed. After a brief 
summary of data and methods, we present the results of 
analyses on the relationship between contracting on one 
hand, and core spending along with performance quality 
on the other, and then on the determinants of contracting 
for the same jurisdictions. In the process, we find an inter- 
esting relationship between contracting and bureaucracy- 
a kind of Parkinson's law for contracting (Parkinson 1957). 
The final section sketches implications for scholars and 
practitioners of public administration. 
Government Contracting: 
Framing the Subject 
Kettl (1993, 6) notes that "governments ... have always 
relied on privatepartners to provide key goods and services," 
but the degree and extent of this involvement have reached 
new highs in recent years. Light (1999) estimates that U.S. 
federal contracting alone accounts for 5.6 million jobs out- 
side of government, primarily for the provision of services. 
National policy encouragements to contract are part of the 
explanation, but there is great variation across agencies and 
sectors (Light 1999, 19-26). Nor are subnational govern- 
ments immune. For example, the International City/County 
Management Association has documented increasing 
amounts of privatization in municipalities during the 1980s 
and 1990s (ICMA 1989; Miranda and Andersen 1994). 
Other studies largely confirm these trends (Dilger, Moffett, 
and Struyk 1997), and cross-national analyses show simi- 
lar patterns (Hodge 2000). Clearly, by most reasonable 
measures, this is the age of the contract. 
A large set of asserted advantages has been proffered 
by those who advocate expanded contracting: lower costs 
(economy), enhanced efficiency, more effectiveness and/ 
or better service, leaner government, greater flexibility, 
weakened labor union influence, expanded choice for con- 
sumers, and more (Savas 2000). Most of the studies on the 
impact of contracting have focused on the economy and 
efficiency portions of the argument, but cost can be logi- 
cally linked to performance quality as well. 
Contracting and privatization are often discussed gen- 
erally, but these notions cover a wide range of activities 
and institutional arrangements. Sometimes, privatization 
refers to the creation of a market sector in a predominantly 
state-owned economic system, as in Eastern Europe dur- 
ing the 1990s. Less radically, the term may refer to dena- 
tionalization-for instance, the selling of a state-owned 
enterprise. Hiving off such entities as British Telecom in 
the United Kingdom is one of many examples here. 
Privatization may also refer to the decision to undertake 
the provision of some good or service through government 
contracts with private firms rather than directly through 
government agencies. A host of contracting arrangements 
have been adopted to involve for-profit or nonprofit enti- 
ties as agents of the state in public activities, from collect- 
ing solid waste to tracking down fathers who fail to pro- 
vide child support, from serving people with AIDS to 
assisting welfare clients in finding work. 
Contracting arrangements differ in many other ways. 
Some encourage nonexclusive links with government and 
promote competition among service providers. Others in- 
volve private actors but structure them into a sole-source 
relationship with government. As Donahue (1989) and oth- 
ers have taken care to emphasize, the extent to which com- 
petition is or is not encouraged as part of a public-private 
arrangement can make a considerable difference in terms 
of which, if any, benefits are likely to ensue-a point that 
follows from the main theories offered by public-choice 
and other contracting proponents. 
Some contracting regimes are highly capital intensive, 
others much less so. Some public-private links are long 
term, possibly 30 years or more (Heilman and Johnson 
1992), whereas others are much more transitory. Some 
clarify a wide range of accountability questions, while oth- 
ers obscure them (Johnston and Romzek 1999; O'Toole 
1989). It is important, therefore, to avoid overgeneralizing 
about contracting and privatization while nonetheless in- 
Parkinson's Law and the New Public Management? 343 
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vestigating the central questions surrounding these impor- 
tant developments. 
No single study could explore this entire set of possi- 
bilities. Here, we restrict our focus to one important kind 
of local government service and seek enlightenment on 
two key themes. Examining only one service provided by 
one particular form of government allows us to avoid the 
apples-and-oranges quality that characterizes some inves- 
tigations of contracting. We explore the extent of contract- 
ing undertaken by school districts within one large, diverse 
state and address two basic research questions: Does con- 
tracting free up financial resources and improve perfor- 
mance? And what explains the extent of contracting in these 
districts? Contracting is, essentially, treated first as an in- 
dependent variable and then as a dependent variable in the 
analysis that follows. 
Two Research Issues 
The relationship between contracting and performance 
has been explored in a number of studies. A wide range of 
putative benefits have been claimed for contracting-or at 
least for contracting conducted under the right circum- 
stances and in the most appropriate fashion. The majority 
of empirical investigations focus on economic impacts, 
especially cost and efficiency. The systematic study of ef- 
fects on service quality, in particular, has been much more 
rare (a large-n investigation reporting on both implemen- 
tation and outcomes and documenting service reductions 
can be found in Brown and Brudney [1998]). This point is 
documented in what is by far the most comprehensive as- 
sessment of privatization and contracting conducted this 
far, a meta-analysis by Hodge (2000). As he points out, 
much of the work consists of case studies. Here, "for ev- 
ery good case study anecdote supporting one side of the 
quality argument, a contrasting story can usually be found 
supporting the other" (131). 
Hodge's own meta-analysis covers several hundred jour- 
nals and other publications across a number of countries. 
For service-quality impacts in the few systematic studies 
identified, he finds that "quality-related effect sizes have a 
magnitude not significantly different from zero" (138).1 In 
an exploration of the same question, Domberger and 
Rimmer (1994) conclude the relationship is not understood. 
The topic of service quality in general, then, is worthy 
of further exploration. In particular, it makes sense to link 
cost and service quality. There are at least two reasons why 
contracting for some of the activities involved in educa- 
tion might have a positive impact on educational perfor- 
mance. First, more contracting could produce economies 
in some (often more peripheral) activities, freeing up part 
of a school system's discretionary budget for use on the 
core educational function. If so, contracting itself-on a 
wide variety of functions-could pay off in better educa- 
tion.2 By this logic, and after invoking the appropriate con- 
trols, more contracting should be associated with more 
spending on the key task of instruction and, thereby, with 
better performance. Second, contracting out peripheral and 
often distracting functions might allow an educational sys- 
tem to concentrate on its basic organizational mission and 
thereby deliver quality instruction. As one business man- 
ager of a diverse school district stated, "We use contracts 
to get rid of headaches. Our principals don't want to deal 
with cafeteria management."3 Presumably, these principals 
can then turn their attention to core educational tasks. With 
apologies to KFC, we might think of this dynamic as the 
"we do chicken right" strategy: an argument for contract- 
ing out necessary but distracting portions of the overall 
job, so that what remains is purely devoted to the technical 
core of education-quality instruction. "We do education 
right" would be the implicit slogan. In short, there are rea- 
sons why proponents might expect contracting to produce 
more instructional spending, all else being equal, and also 
performance improvements. 
The issue is particularly salient in the field of education 
simply because no subject of public policy is more de- 
bated today. Public opinion has focused on educational 
quality and performanceas critical issues. Reformers as 
well as educational specialists have been experimenting 
with and debating the merits of alternative modes of ser- 
vice provision for elementary and secondary education; 
vouchers, testing, charter schools, and the directed involve- 
ment of private companies in many aspects of the educa- 
tional process have all been options on the agenda in re- 
cent years (Chubb and Moe 1990; Schneider, Teske, and 
Marschall 2000; Stone 1998). An assistant business man- 
ager of a large urban district averred, "Privatization is the 
wave of the future in public education. You can't attend a 
conference or a convention without at least one speaker 
extolling the benefits of relying on private businesses for 
goods and services." During the 2000 presidential elec- 
tion, privatization themes were prominent parts of the cam- 
paign; in Texas, the president's home state, these issues 
have been especially visible. Indeed, the current U.S. sec- 
retary of education, Rod Paige, came to Washington di- 
rectly from his role as superintendent of the largest school 
district in Texas. It is fitting that an examination of the 
contracting phenomenon, particularly in regard to service 
quality, would focus on education in Texas.4 
Our approach is to analyze both links identified in the 
logic sketched previously. First, we determine whether the 
extent of Texas school district contracting is associated with 
higher spending on instruction. Then we test whether the 
former is related to educational performance. One reason 
that careful investigations of the contracting-service qual- 
ity link have seldom been conducted is that good measures 
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of service quality are difficult to develop. This point holds 
in the field of education. Currently, debates about the use 
of standardized tests are particularly intense. Nonetheless, 
such testing is being proposed as a prime measure of dis- 
trict performance in national comparisons. In Texas, a heavy 
focus on such testing has been the policy for a number of 
years. For that reason, an examination of the link between 
standardized test performance in Texas and the use of con- 
tracting by districts can provide a look at a set of jurisdic- 
tions with particularly acute attention to this service-qual- 
ity measure, one that is already in widespread use to 
evaluate schools. 
Is greater reliance on contracting associated with higher 
instructional spending and especially with better educa- 
tional performance, as measured by standardized test per- 
formance? This is the first set of issues addressed in the 
next section of this study. Although the answers cannot be 
generalized to all services or to all governments, for the 
reasons sketched in the preceding section, systematic evi- 
dence in this field can provide part of the answer. In a prac- 
tical sense, education administrators facing the discretion- 
ary choice about contracting need to know whether there 
are such effects. 
A second research question examines contracting from 
another angle. Instead of inquiring about the policy-rel- 
evant consequences of contracting, we ask why public of- 
ficials make the decision to contract more or less exten- 
sively. One key determinant is the service sector involved. 
For some fields, the private sector simply provides more 
readily available options. Solid waste collection and sero- 
logical laboratory testing are functions with a flourishing 
private market in most medium-sized metropolitan areas, 
regardless of government contracting decisions. In such 
specialties, public decision makers have practical alterna- 
tives readily at hand, should they desire to contract out for 
services. For other services, of course, few firms are avail- 
able. Part of the explanation of why some government agen- 
cies rely heavily on contracting and others do not has to do 
with their substantive jurisdictions.5 In this study, we hold 
the substantive focus virtually constant by examining only 
school districts. We are interested in the portion of the con- 
tracting decision that is, in a real sense, discretionary. 
One way of exploring why contracting is chosen is to 
ask the decision makers involved. Some research, albeit 
not in public education, has this sort of design. Dilger, 
Moffett, and Struyk (1997), for instance, survey officials 
in large cities and ask, among other things, their reasons 
for contracting.6 
Here, however, we take a different approach. We have 
interviewed a small set of the relevant managers in some 
of the school districts to get a sense of their decision-mak- 
ing context and to determine whether findings developed 
in this research are valid among the relevant practitioners, 
but we are less interested in decision makers' rationales 
than we are in how the variance in contracting across dis- 
tricts can be explained by measurable features of the local 
setting. The decision to contract may be a complex combi- 
nation of particular demands, opportunities, structural fea- 
tures, and elements of context. We are interested in deter- 
mining whether there are systematic patterns to be 
uncovered which may have escaped the notice of even the 
decision makers who have responsibility for the contract- 
ing decision and contract management. Knowing about 
these relationships may help public administrators and 
analysts of contracting to understand the circumstances 
under which contracting is more likely to be employed, 
and perhaps why. 
To explore these two research questions with care, we 
have chosen the overall degree of contracting as the inde- 
pendent and dependent variables of interest, respectively. 
Focusing on the generic extent of contracting treats differ- 
ences in the type of contracted goods and services, as well 
as other elements of a contracting regime, as unimportant 
for present purposes. These features may be very signifi- 
cant in practical terms, particularly if one is interested in 
managing a contracting structure responsibly. For the is- 
sues dealt with in this analysis, however, we examine only 
the extent of contracting, measured by the percentage of a 
district's budget devoted to contracts. In so doing, we ex- 
plore what can be said about the sheer breadth of contract- 
ing in this important policy sphere. 
Data and Methods 
Data on contracting are available from more than 1,000 
Texas school districts for 1997-99, resulting in 3,122 total 
cases. The average district contracts out 9.1 percent of its 
budget. Although the dispersion is relatively narrow (stan- 
dard deviation 3.2 percent), there is substantial variation 
among districts-with a low of 0.6 percent and a high of 
54.0 percent. School districts contract for a wide variety 
of activities, including services for students with special 
needs, cafeteria management, security, professional devel- 
opment, and so forth.7 Because the research design involves 
pooled cross-sections of time series, the investigation can 
develop answers to the questions of whether spending on 
core tasks as well as educational performance are boosted 
by contracting, after taking into account a range of other 
influences. And we can look for determinants of contract- 
ing while exploring evidence about causality across time. 
Because the data are pooled for three years, we include a 
set of annual dummy variables to control for any trends in 
the data. Heteroskedasticity, another threat to validity in 
pooled designs, was assessed using the White test; the lev- 
els of heteroskedasticity were within acceptable bounds. 
Parkinson's Law and the New Public Management? 345 
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http://www.jstor.org/page/info/about/policies/terms.jspContracting Trims Core Instructional 
Spending and Does Not Improve 
Performance 
In theory, contracting out for needed expertise is related 
not just to spending, but also to effective performance 
(Savas 1987, 2000). For reasons sketched earlier, the ex- 
tent of overall contracting by school districts might be able 
to free up some spending for instruction. To see whether 
this relationship obtains, additional factors that can influ- 
ence spending levels are included as controls. These can 
be grouped into those measuring task difficulty-that is, 
how disadvantaged the student population is and how com- 
plex the educational challenges are-and those tapping 
general resource levels available. The five measures of task 
difficulty are the percentages of students who are African 
American, Latino, poor (that is, eligible for free or reduced- 
price school lunch), enrolled in special education, and en- 
rolled in bilingual education, respectively. Resource vari- 
ables include district tax wealth per student, tax rate, 
revenue per pupil, and percentage of state aid.8 
Three multiple-regression analyses were conducted to 
find out whether contracting contributes to the extent of 
spending on the core instructional function. Multiple re- 
gression as a statistical tool allows us to isolate the impact 
of contracting on instructional spending while controlling 
for other variables that tap task difficulty and resources 
available. In each case, we explore the relationship by ex- 
amining a different dependent variable. The percentage of 
overall funding spent on instruction measures the slice of 
the total district budgetary pie dedicated to instruction 
alone. Per student spending on instruction is a second way 
to quantify the instructional effort, and teachers' salaries 
is a less direct but still revealing indication of in- 
structional support. Table 
The results of all three regressions are displayed Alloca 
in table 1. In all instances, the finding with respect 
to contracting is similar: Not only does contract- 
ing not generate more core instructional spending, Indeper 
it is associated with lower expenditures for instruc- Percent 
tion. The relevant sign in all three equations is nega- Controls 
tive for the percentage contracted, and these find- Black stt 
ings are all statistically significant at the .001 level. Latinos Poverty 
A 1 percentage point increase in district contract- Special 
ing, for instance, is associated with a 0.25 percent- Bilinguc 
age point decrease in instructional spending. Tax wec Tax rate 
The evidence indicates that contracting con- Revenu( 
stricts instructional resources. Does it improve State ai 
performance? Although school districts are evalu- Standar 
ated on a wide range of performance indicators, R2 
gh-stakes standardized tests is fre- the use of high-stakes standardized tests is fre- N 
quently becoming the norm. Texas has such an Notsigr 
exam, the Texas Assessment of Academic Skills Coefficie 
(TAAS), which is given in grades three through eight and 
as a high school exit exam. School districts are graded by 
the state on their performance, and the release of state rat- 
ings is front-page news in virtually every newspaper in 
Texas. If contracting relates to overall performance, the 
salience of the TAAS exam suggests it is one place the 
impact of contracting should be felt. The specific measure 
of performance here is the percentage of students who pass 
all portions (math, reading, and writing) of the exam. 
Once again, several control variables are used in the 
analysis, and they can be grouped into those measuring 
task difficulty and those tapping resources applied to the 
process; all of these variables are frequently used in edu- 
cation-production functions as controls (Hanushek 1996; 
Hedges and Greenwald 1996).9 We incorporate the three 
most general measures of task difficulty (the percentages 
of students who are African American, Latino, and poor), 
as well as a standard set of resource variables: the percent- 
age of students in gifted classes, average teacher salaries, 
average class size, and the percentage of teachers who are 
not certified. 
Does a greater commitment to contracting mean better 
district performance? Two regressions relating contract- 
ing to performance are shown in table 2. The first con- 
tains results for all districts; the second includes only those 
districts with more than 1,000 students (extremely small 
districts sometimes have unreliable test scores because 
their averages can be affected by a small number of stu- 
dents; note the increase in explained variation for larger 
districts). In both cases, the relationship between contract- 
ing and performance is negative rather than positive. For 
larger districts, the negative relationship meets traditional 
standards of statistical significance. In such districts, a 1 
1 Contracting Is Associated with Fewer Resources 
ited to the Core Instructional Function 
Dependent variables 
Percentage spent Per student Teachers' 
on instruction on instruction salaries 
ndent variables Slope t-score Slope t-score Slope t-score 
age contracted -.2562 8.93 -11.1398 3.78 -167.91 14.16 
s 
udent (percent) -.0246 3.04 -2.8916 3.48 42.62 12.78 
tudent (percent) -.0110 1.94 .8300 1.43* 46.72 14.16 
-.0125 1.67 2.5941 3.46 -44.63 12.78 
education (percent) .0323 1.48* 7.4125 3.32 -4.04 .45* 
1i (percent) -.0442 3.43 -8.1441 6.15 -12.48 2.35 
alth/student K -.0019 4.99 -.0886 2.26 1.32 8.40 
a -5.7646 13.46 -547.0672 12.43 -439.90 2.48 
e per pupil K -.4790 7.89 .3458 55.40 .04 1.49* 
d percent .0172 3.45 -1.1733 2.29 -25.26 12.43 
rd error 4.55 468.07 1880.81 
.37 .69 .40 
151.39 578.80 174.06 
3,123 3,123 3,122 
nificant at p < .05. 
;nts for individual years are not reported. 
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percentage point increase in contracting is associated with 
a 0.14 percentage point drop in test scores, controlling for 
task difficulty and resources. Because the relationship is 
not large, we should be cautious in terming contracting 
detrimental for student performance. However, the regres- 
sion results clearly show that districts that engage in greater 
contracting do not have higher levels of student perfor- 
mance on this exam. In addition, because contracting out 
is associated with lower teachers' salaries (table 1), and 
low teachers' salaries are linked to lower performance 
(table 2), contracting may also have an indirect negative 
impact on test scores. We pursued this relationship fur- 
ther by examining other dependent variables that measure 
performance (results not shown). Examining TAAS scores 
for black and Latino students, overall ACT scores, and 
overall SAT scores did not produce any positive relation- 
ships between contracting and performance. In one case, 
Latino students, a statistically significant negative rela- 
tionship was found. Our conclusion is a conservative one- 
that contracting is not positively related to school district 
performance. 
Table 2 Contracting Is Not Positively Associated with 
District Performance 
Dependent variable = Student pass rate (TAAS) 
Independent variables 
Percentage contracted 
Controls 
Black student (percent) 
Latino student (percent) 
Poverty 
Gifted class (percent) 
Teacher salaries (thousands) 
Class size 
Noncertified teachers 
Standard error 
F 
N 
All districts Enrollment 1,000+ 
Slope t-score Slope t-score 
-.0485 1.09* -.1377 2.18 
-.2319 
-.1038 
-.1531 
.1848 
.8032 
-.4204 
-.1071 
7.58 
.44 
16.92 
11.69 
12.68 
5.17 
11.90 
6.68 
3.53 
241.55 
3,120 
-.1741 
-.0623 
-.2093 
.2499 
.5528 
-.5191 
-.2612 
5.66 
.61 
228.20 
1,443 
*Not significant at p < .05. 
Coefficients for individual years are not reported. 
Determinants of Contracting 
If contractingdoes not improve organizational perfor- 
mance, why do school districts engage in it? Although the 
literature makes several normative suggestions as to why 
an organization might opt to contract out, such as a desire 
for efficiency as well as the range of other considerations 
sketched earlier (Hodge 2000; Savas 2000), little is known 
with confidence about the determinants of contracting. 
Boyne (1998) offers a critical review of the extant research 
literature on a number of grounds, including "poor mea- 
sures" and the failure to investigate "reciprocal relation- 
11.77 
5.33 
13.21 
5.43 
6.19 
4.65 
4.98 
ships between contracting out and the explanatory vari- 
ables" (150). Our analysis is designed to minimize some 
of these difficulties, particularly the issue of reciprocal re- 
lationships, as explained later. Boyne groups candidate 
explanatory variables into four clusters and finds little con- 
sistent evidence supporting the influence of most variables 
examined. He also points to very low levels of multivari- 
ate explanation: usually less than 20 percent of variance 
explained, sometimes as little as 5 percent. 
No one study can address all of the possible limitations 
of the relatively sparse earlier work. We conducted an ex- 
ploratory study designed to minimize some of the poten- 
tial difficulties. We tested models incorporating approxi- 
mately 50 variables, including measures of several kinds 
of variables thought to be important in earlier work on 
local government contracting. We also sought to incorpo- 
rate some task-specific measures because this study fo- 
cuses on a single public service rather than a full array of 
municipal functions. We thought that contracting might 
be related to student diversity (measuring task difficulty), 
types of classes offered (vocational, gifted, etc., measur- 
ing organization of the production process), allocations 
of funds to different functional categories (teaching, sup- 
port, capital), number of employees, and actual sources 
of funding (federal, state). The overwhelming number of 
these variables were simply unrelated to the extent of con- 
tracting.10 Nonetheless, some relationships were found, 
and, although the overall level of explanatory power was 
not high, it surpassed that offered in most earlier work on 
local contracting. 
Table 3 shows the correlates of contracting in Texas 
school districts. First, contracting is negatively associated 
with school district size, measured by total enrollment. This 
finding suggests that smaller organizations may need to 
contract out because they do not have the economies of 
Table 3 The Determinants of Contracting 
Dependen 
Independent variables 
Enrollment (thousands) 
Teacher turnover 
Revenue per 
pupil (thousands) 
Percentage local 
funds 
Central administrator 
(percent) 
School bureaucrats 
Central office bureaucrats 
Standard error 
R2 
F 
N 
it variable = Percentage of budget contracted 
Slope t-score Slope t-score 
-.0237 5.10 -.0252 5.42 
.0408 6.39 .0374 5.74 
.4836 15.47 
.0258 11.18 
.3214 
2.82 
.24 
139.04 
3,122 
.4080 10.99 
.0271 11.70 
8.07 
.9326 
1.3662 
2.82 
.24 
120.27 
3,122 
3.85 
6.88 
*Not significant at p < .05. 
Coefficients for individual years are not reported. 
Parkinson's Law and the New Public Management? 347 
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scale necessary to employ certain specialists (for instance, 
a school district of 300 students is unlikely to have an in- 
house psychologist or a specialist in diagnosing learning 
disabilities). The business manager of a medium-sized 
school district stressed these economies of scale: "We let a 
contract to a private organization to write the specs and 
buy a new chemistry lab; we're too small to have our own 
contract specialist in this area." Second, districts with high 
levels of teacher turnover are associated with more con- 
tracting. An unstable organizational membership means 
that organizational memory or capacity is likely to be trun- 
cated. Such a unit may well have to contract out for ser- 
vices simply because the individuals who provided those 
services in the past are no longer with the organization or 
have not yet been replaced. Ironically, contracting out un- 
der such circumstances could bolster institutional stabil- 
ity, even as it disperses control. 
Third, organizational resources appear to matter a great 
deal. Revenue per pupil and the percentage of funds from 
local sources are both strongly and positively related to 
contracting. A district that gets most of its funds from 
local sources (the range in Texas is 5 percent to 95 per- 
cent) has a great deal of local property wealth, so local 
revenue dominance indicates a relatively well-off district, 
just as revenue per student does. These relationships sug- 
gest that contracting might be used to provide enhance- 
ments (as opposed to core organizational functions), that 
is, functions that are nice to offer if resources are plenti- 
ful. The business manager of a suburban district conceded, 
"some of our contracting is for bells and whistles, a guest 
conductor for the orchestra or video services for athletic 
events." She added, "These things are the first to go in a 
budget crunch. By contracting for these services, we avoid 
layoffs." Interestingly, the relationship between contract- 
ing and resources here may be in the opposite direction 
from that in certain other policy fields. Local govern- 
ments, for example, outsource their wastewater treatment 
services more frequently when they face regulatory sanc- 
tions and cannot organize the local resources, particu- 
larly human resources, to solve the problem (O'Toole 
1991). Resources might work in either direction, there- 
fore, depending on the kinds of pressures and incentives 
working on decision makers. 
The most interesting relationship in table 3, however, 
is that for bureaucracy. A 1 percentage point increase in 
central office administrators (as a percentage of total em- 
ployment) is associated with a 0.32 percentage point in- 
crease in contracting, all other things being equal. Con- 
tracting, thus, is associated with more top-heavy district 
organizations. The third and fourth columns in table 3 
probe this relationship further by using alternative mea- 
sures of bureaucracy-tapping bureaucracy at the school 
level and in the central office separately. School bureau- 
cracy is measured as the number of campus level admin- 
istrators per 100 students; central office bureaucracy is 
measured as the number of central office administrators 
per 100 students. Again, more contracting is associated 
with more bureaucracy for both. Noting the relative size 
of these coefficients is important. The relationship between 
central office bureaucracy and contracting is substantially 
larger than the relationship to school-level bureaucracy. 
This finding supports the interpretation that contracting 
is associated with more top-heavy organizations. One busi- 
ness manager, when told of these findings noted, "That's 
not surprising. If you use a lot of private vendors, the cen- 
tral office has to hire more people to monitor the con- 
tracts. State law is pretty strict about contracts and most 
of us have been burned before." 
Bureaucrats and Contracts: 
What Causes What? 
The relationships between bureaucracy and contract- 
ing beg the question, what causes what? Does a large 
number of bureaucrats generate demands to contract out 
a larger share of the total activities of the organization, or 
does the presence of more contracting generate a demand 
for more bureaucrats? This classic "chicken-and-egg" 
question (Thurman and Fisher 1988) has normative im- 
plications for contracting and public organizations, and 
its general neglect is one focus of Boyne's criticism of 
earlier research (1998). If a large number ofbureaucrats 
generates more contracting, then the extent of contract- 
ing is likely to reflect the values and preferences of bu- 
reaucrats rather than concerns with organizational per- 
formance and productivity. If contracting itself generates 
more bureaucrats, this link may be viewed as evidence 
for bureaucrats' seeking to aggrandize the size of the bu- 
reaucracy under contract-plentiful conditions-or, more 
benignly, as a response to a perceived need for more con- 
tract management and oversight, given the challenges 
posed by contracting arrangements. 
Separating out the relationships between contracting and 
bureaucracy is not possible with cross-sectional data. For- 
tunately, we have data over a three-year period which al- 
low us to disentangle these relationships using panel analy- 
sis (Hsiao 1986; Meier, Polinard, and Wrinkle 2000). If 
bureaucrats cause an increase in contracting, we would 
expect to see more bureaucrats in year 1 result in more 
contracting in year 2, even controlling for the level of con- 
tracting in year 1. If bureaucrats do not cause an increase 
in contracting, then the change in contracting in year 2 
should be random with respect to the number of bureau- 
crats in year 1. Similarly, if contracting is a cause of more 
bureaucrats, an increase in contracting in year 1 will result 
in an increase in bureaucrats in year 2, even when control- 
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ling for the number of bureaucrats in the initial year. Panel 
analysis provides a set of equations that will indicate 
whether changes in bureaucracy result in changes in con- 
tracting; whether changes in contracting result in changes 
in bureaucracy; whether both bureaucracy and contracting 
affect each other; or whether neither has an impact on the 
other. The key coefficients in assessing these possibilities 
are for the impact of contracting at time 1 on bureaucrats 
at time 2 and the impact of bureaucrats at time 1 on con- 
tracting at time 2. 
Table 4 presents the panel-analysis causality results us- 
ing the number of central office administrators per 100 stu- 
dents as the measure of bureaucracy. Table 5 presents the 
same results but uses the percentage of central office ad- 
ministrators as the measure of bureaucracy. Both sets of 
results are consistent with the hypothesis of reciprocal cau- 
sation (Boyne 1998). Increases in bureaucracy appear to 
generate future increases in contracting. Increases in con- 
tracting, in turn, appear to generate future increases in bu- 
reaucracy. The long-term result is a process that feeds on 
itself; an increase in contracting generates a top-heavy or- 
ganization with more administrators and relatively fewer 
production workers. The greater bureaucracy, in turn, gen- 
erates more contracting, and the cycle continues." This 
relationship was corroborated by one business manager 
who, when asked if contracting personnel generally advo- 
cated using more contracts, commented, "Sure, it's what 
they do. They see contracting as the solution to a lot of our 
problems." 
Implications 
The analyses reported in the preceding sections offer 
provocative findings. From the data available in Texas, 
contracting does not free up resources to be devoted to the 
central mission of school districts; rather, the opposite is 
the case-more contracting is associated with lessened 
support for instruction. Further, service quality in public 
education, measured by the most salient and explicitly re- 
Table 4 The Relationship between Contracting and 
Bureaucrats Is Reciprocal 
Bureaucrats measure = Central office 
administrators per 100 students 
Dependent variable 
Contracting Bureaucrats 
Independent variables Slope t-score Slope t-score 
Contracting last year .8387 52.01 .0086 5.38 
Bureaucrats last year .5542 4.78 .8730 76.36 
Standard error 2.06 .20 
R2 .62 .77 
F 1,681.45 3,559.10 
N 2,080 2,081 
*Not significant at p < .05. 
warded metric, is not improved by contracting. The rela- 
tionship may be negative. While these findings may be due 
to more complicated dynamics than can be tested with the 
data available, the most obvious interpretation is to ques- 
tion the frequently asserted injunction that greater involve- 
ment of private firms and market incentives will improve 
performance. The few other systematic studies of contract- 
ing and service quality themselves are inconclusive on this 
link. As Hodge (2000, 138) points out, in the most system- 
atic review of research findings to date, no general and 
consistent relationship has been found to hold. Our study, 
with the first systematic investigation of this topic in the 
field of public education, suggests that at least in this sec- 
tor, managers and political leaders should be cautious in 
embracing a contracting strategy out of concern for en- 
hancing investments in core objectives and improving per- 
formance. Doing so may actually chip away at what can 
be invested and what has been achieved. At the very least, 
the findings reported here should encourage caution among 
those who are thinking of adopting contracting as part of a 
strategy for boosting performance. And additional research 
is clearly warranted to explore the nature of this relation- 
ship in such a crucial sector of policy and administration. 
What encourages contracting? While jurisdictional size 
and the attending scale economies seem to provide part of 
the answer, as do the degrees of instability and resources 
evident within a district, the most provocative issue has to 
do with bureaucracy itself, particularly central office bu- 
reaucracy. More bureaucrats, and particularly a larger ad- 
ministrative presence in district headquarters, presage more 
contracting. Indeed, the causality appears to run in both 
directions in a vicious-or depending on one's perspec- 
tive, virtuous-cycle. 
These findings are limited, and one should be cautious 
in generalizing to the larger world and over more extended 
periods from findings derived from Texas data of limited 
duration. We cannot be sure of the full causal explanation 
on the basis of the kinds of analyses that can be conducted 
with the data available. Nonetheless, these analyses, ac- 
Table 5 The Relationship between Contracting and 
Bureaucrats Is Reciprocal 
Bureaucrats measure = Percent 
central office administration 
Dependent variable 
Contracting Bureaucrats 
Independent variables Slope t-score Slope t-score 
Contracting last year .8518 53.65 .0182 2.14 
Bureaucrats last year .1002 3.03 .4654 23.93 
Standard error 2.07 1.23 
R2 .62 .25 
F 1,663.66 339.21 
N 2,080 2,081 
*Not significant at p < .05. 
Parkinson's Law and the New Public Management? 349 
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companied by the comments offered by practicing man- 
agers in the system, suggest some interesting possibili- 
ties. The dynamics here are potentially quite important 
and worthy of more thorough analysis. This is particu- 
larly the case because, unlike some determinants of con- 
tracting, such as jurisdictional scale or community wealth, 
the relative size and shape of a school district bureaucracy 
is partially within the control of administrators and other 
policy makers. 
It may be that more contracting triggers aggrandizing 
tendencies by bureaucrats, particularly in central offices, 
as they seek to expand in a specialty on the rise. In a re- 
lated vein, a more ambitious contracting program prob- 
ably stimulates more interest in and attention to oversight 
and contract management. Furthermore, part of this ten- 
dency may be attributable to understandable concerns about 
avoiding scandal and publicly visible missteps by con-tracted agents. All of these forces might encourage bureau- 
cratic growth, especially at the center. 
Why would more (central) bureaucracy cause more con- 
tracting, particularly when larger administrative structures, 
in relative terms, would seem to imply a lessened need for 
outside help? Some internal diseconomies of scale may be 
operating at this point in the system: More bureaucrats 
means greater relative transaction costs in negotiating 
through the system for tasks such as assessing legions of 
vendors, seeking approval for contract changes, and ad- 
ministering oversight routines. In this picture, the internal 
contracting system itself becomes overloaded, and man- 
agers find a release valve in outsourcing additional func- 
tions to relieve the burden. 
A larger central staff is also likely to mean more knowl- 
edge of contracting options, by virtue of more in-house 
expertise and the ability to specialize in important de- 
tails, and thus more contracting selected. A supply-side 
element could be operating here as well: Contractors are 
perhaps more likely to target jurisdictions with larger and 
more knowledgeable staffs and in which systems are al- 
ready well developed for processing and managing con- 
tracted operations. 
The data currently available do not allow us to deter- 
mine which of these explanations are more likely. But all in 
all, this dynamic suggests a version of Parkinson's Law 
adapted to the age of New Public Management. In the origi- 
nal version of the famous dictum, C. Northcote Parkinson 
claimed, "work expands so as to fill the time available for 
its completion" (1957, 2). The aphorism gained renown 
because of the wit of its author and the kernel of wisdom it 
revealed. The findings here suggest there may be some truth 
to the notion that contracting expands to consume the ad- 
ministrative resources available for its generation and man- 
tiply subordinates, not rivals," and that staff "make work 
for each other" (4), so it may be that bureaucrats generating 
more contracting work trigger, through a Parkinsonian logic, 
a need for still more staff to deal with it. And as the find- 
ings on educational performance in Texas indicate, in such 
a cycle-whether in Parkinson's time or in our own-it is 
not at all clear that the public interest is served (Frederickson 
1997; Gawthrop 1998). 
This concern, in turn, points to an important theme that 
we hope will be treated seriously as a result of this analy- 
sis. Here we have begun to systematically examine some 
of the public management elements and consequences of 
contracting. While hundreds of studies focusing on con- 
tracting and privatization have been completed, few ad- 
dress with care either the demands placed on public man- 
agement by contracting arrangements (for recent insightful 
exceptions, see Fernandez, Lowman, and Rainey 2001; and 
Johnston and Romzek 1999) or the full range of consider- 
ations public managers need to bear in mind when consid- 
ering the contracting option (Hodge 2000). These issues 
are omitted from the New Public Management's celebra- 
tion of contracting options, and they are entirely absent 
from public choice, principal-agent theory, and other in- 
tellectual justifications for contracting. It is time they as- 
sume a prominent place in the research and practical lit- 
erature in the field of public administration. 
Acknowledgments 
Financial support for this project was provided in part by the 
George Bush School of Government and Public Service at Texas 
A&M University. The authors acknowledge the helpful com- 
ments of Sergio Fernandez, as well as the assistance of several 
Texas education district business managers, who responded to 
questions about their responsibilities and context. All data and 
documentation necessary to replicate this analysis can be ob- 
tained by e-mailing kmeier@politics.tamu.edu. 
agement. A corollary might also be apropos: Just as 
Parkinson noted that bureaucrats can be motivated to "mul- 
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Notes 
1. For the technical details of effect size and related confidence 
intervals, see Hodge (2000, 71-72). 
2. If data were available, one could also test directly whether 
the contracting of particular subfunctions produces service- 
quality improvements for those activities. Unfortunately, the 
information needed to conduct such analyses is not avail- 
able. Still, for the reasons sketched in this article, propo- 
nents of contracting could expect general educational pay- 
offs from a more enthusiastic embrace of contracting. The 
analysis tests this idea. 
3. To aid in the interpretation of the quantitative analyses re- 
ported in this study, interviews were conducted with four 
business managers and one assistant business manager in 
five Texas school districts, which were chosen to represent 
a wide range of circumstances in terms of district size, loca- 
tion, demographics, and wealth. 
4. Texas also has the best accountability database for educa- 
tion, thereby offering measures of all of the concepts needed 
for this study. 
5. One caveat: Increasingly few fields can be viewed as inher- 
ently governmental, and thus immune from contracting. 
Light (1999, 143-55) shows how difficult it has been to craft 
any general principles on this subject at the national level. 
Developments within such fields as incarceration demon- 
strate how movable the boundary may be. 
6. Their results indicate that better service was an important 
rationale, surpassed only by the aim of cutting costs (Stein 
1990). 
7. In other states, contracting for transportation services is likely 
to represent a substantial portion of the budget. Texas dis- 
tricts generally operate their own transportation systems 
rather than contract out for the services. Some districts in 
other states also contract with private firms to run or over- 
see individual schools or the entire school system. 
8. Multiple measures of task difficulty and resources are in- 
cluded here to control for as many other influences as pos- 
sible when exploring the relationship between contracting 
and instructional spending. Some collinearity is evident 
among these measures. In this portion of the analysis, the 
goal of isolating the impact of contracting overrides others, 
such as developing stable estimates of coefficients for rel- 
evant models. For this reason-and to focus the coverage 
on the core relationships of interest-we do not discuss the 
impact of controls on instructional spending. 
9. In this instance as well, our purpose is not to create the per- 
fect education production function, but rather to control for 
factors generally associated with student performance. Add- 
ing or subtracting variables such as the percentage of state 
aid, teacher experience, and instructional expenditures per 
pupil from this equation has little impact on the relation- 
ships between contracting and performance. These variables, 
however, generated a great deal of collinearity among the 
other variables and some switching of signs among the con- 
trol variables. 
10. The relatively low level of explained variation suggests that 
an organization's preference for contracting is, to some ex- 
tent, likely to be idiosyncratic. 
11. By definition, there has to be an upper limit to this cycle. 
The relatively slow growth of contracting in public schools 
at present may mask existing constraints on contracting or 
the size of central office bureaucracy. 
Parkinson's Law and the New Public Management? 351 
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	Article Contents
	p. 342
	p. 343
	p. 344
	p. 345
	p. 346
	p. 347
	p. 348
	p. 349
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	p. 352
	Issue Table of Contents
	Public Administration Review, Vol. 64, No. 3 (May - Jun., 2004), pp. 257-384
	Front Matter [pp. 257-258]
	Special Report
	Privacy and Technology: Reconsidering a Crucial Public Policy Debate in the Post-September 11 Era [pp. 259-269]
	Brown v. the Board of Education: Fifty Years Later
	Brown v. Board of Education at 50: The Multiple Legacies for Policy and Administration [pp. 270-274]
	Lead Article
	Bioterrorism, Fear, and Public Health Reform: Matching a Policy Solution to the Wrong Window [pp. 275-288]
	Gender Issues
	Women's Jobs, Men's Jobs: Sex Segregation and Emotional Labor [pp. 289-298]
	Gender Equity: Illusion or Reality for Women in the Federal Executive Service? [pp. 299-308]
	Policy Implementation
	The Paradox of Implementing the Government Performance and Results Act: Top-Down Direction for Bottom-Up Implementation [pp. 309-319]
	Local Government
	The Changing Structure of American Cities: A Study of the Diffusion of Innovation [pp. 320-330]
	Drivers and Consequences of Citizen Satisfaction: An Application of the American Customer Satisfaction Index Model to New York City [pp. 331-341]
	Contracting
	Parkinson's Law and the New Public Management? Contracting Determinants and Service-Quality Consequences in Public Education [pp. 342-352]
	Political Philosophy
	Public Administration, the History of Ideas, and the Reinventing Government Movement [pp. 353-362]
	Network Structure
	Network Structures: Working Differently and Changing Expectations [pp. 363-371]
	The Reflective Practitioner
	Leading a Public University: Lessons Learned in Choosing the Possibility of Quantum Results Rather than Incremental Improvement [pp. 372-377]
	Book Review
	Review: In Modernism's Wake: Public Administration and Policy in the 21 st Century [pp. 378-382]
	Booknotes [pp. 383-384]
	Back Matter