In addition to the variations in the structure of firms, public bureaus, and nonprofit organizations just described, there exist organizations which do not fit neatly into any of these organizational categories. These alternative organizational forms derive from contractual rela- tionships across sectors. Their intersectoral nature distinguishes these organizational forms from that of a contractual relationship within a sector, such as the business alliances between for-profit firms described earlier.
Contractual relationships between public organizations and private for-profit firms or nonprofit organizations occur frequently. Bureaus contract with private for-profit firms in a variety of ways. Some contracts are for specific projects, such as defense contracts with corporations to design, develop, and build a particular weapons system or other type of military equipment. These contracts typically specify a detailed project budget and project completion deadline at which point the specific con- tract relationship ends and the contract outcomes are evaluated.4
The bureau manager is the principal in these contractual relationships and becomes the monitor of the contracting firm that is its agent. The contracts are awarded through a competitive bidding process so that the resulting contractual arrangements are predicted to be efficient. However, McKean (1972) demonstrated that the differences in property rights structures between the private and public sectors result in ineffi- ciencies in these contractual arrangements, even when the bidding process is competitive. The competitive bidding process has also been subject to collusion among the bidders for government contracts. As shown earlier, the property rights system in the public sector promotes the expansion of projects and cost, not efficiency. Thus bureau man- agers have little incentive to monitor private for-profit managers to reduce either inefficient production or collusion. The result is that pri- vate for-profit managers with economic property rights can increase their discretionary ability by expropriating public residual rights.
In addition to these project-specific contracts, public bureaus regu- larly issue requests for proposals (RFPs) for ‘task force’ type contracts with private for-profit firms. Task force contracts are open ended con- tracts; the contract does not specify a particular project or budget, but rather proposes a maximum budget for as yet unspecified services or tasks to be provided to the bureau by the firm as needed over some given period of time. Employees of the contracted firm are made avail- able to the bureau on an as-needed and ongoing basis to work with bureau staff to assist in providing their required services to the public.5 These contracts may be extended or renewed multiple times. The effect of these contracts is that employees of for-profit firms become extended staff of the bureau funded by public funds, and the decisions regarding the use and allocation of those employees resides with private sector, profit-oriented firm management.
The points raised by McKean (1972) are relevant here as well, partic- ularly since the terms of task force contracts are open ended and ambiguous, so that the contractual requirements for a given budget are not clearly specified. Contracts of this type are incomplete and subject to inefficiencies and expropriation that may be exacerbated when subject to the different property rights systems of the private for-profit sector and the public sector simultaneously.
Public bureaus also contract with private nonprofit organizations, where the bureau may be a source of funds for the nonprofit’s provision of services directly to the public, rather than to the bureau. In this situ- ation, as with for-profit firms, the nonprofit organizations must bid for these funding contracts through the competitive proposal process. The differences in property rights systems between public bureaus and nonprofit organizations, however, are likely to lead to inefficiencies in the contracting process (Peat and Costley, 2001). The public- nonprofit contracts in the US are short term contracts, unlike those in the Netherlands and Germany. The short term nature of the contracts increases the effective competition among nonprofits for public funding, which would be predicted to increase efficiency. Recall, however, that with the property rights structure in the public sector, bureaus benefit from larger programs and funding, and do not benefit from reducing project cost. As Carroll (1990) showed for bureau competition, the prop- erty rights structures of the public and nonprofit sectors predict that nonprofits will, like bureaus, engage in nonprice competition that emphasizes program benefits and deemphasizes (but not minimizes) cost in order to obtain government funds to expand their revenues, output, and/or quality of services. The increased competition for nonprofit con- tracts therefore would not reduce inefficiency as is usually predicted with competition.
Another form of public and nonprofit organizational structure is that of the quasi non-governmental organization, or QUANGO (Jackson, 1983). These are nonprofit organizations that are supported by public funds and may be created as an independent arm of a particular public agency or of a legislative body at the federal, state, or local level. Quasi non-governmental organizations include port authorities, sports stadium authorities, and other commissions, councils, and boards. Managers of these nonprofit organizations are granted considerable autonomy and have decision authority over the allocation of public funds; however, their accountability is less direct than in that of a formal public agency, or even than an ordinary nonprofit organization. The stakeholders (and owners) of this type of nonprofit organization are the taxpayers and their elected representatives rather than private donors or grantors.
Because of their autonomous nature, that is, because they are not a part of the government whose funds they are committing, ownership rights are more mitigated than with public bureaus. Property rights in these organizations are not well specified and even less clear than are the property rights in either public bureaus or donor funded nonprofit organizations. This situation along with the indirect accountability of the manager suggests a higher degree of inefficiency than would occur in either bureaus or ordinary nonprofits. The inefficiency may be miti- gated by either the degree of motivation of the manager with respect to the mission of the quasi non-governmental organization, or possibly of the public profile of the organization, so that more effective monitoring by the public or some specific group may occur.
Source: Carroll Kathleen A. (2004), Property Rights and Managerial Decisions in For-Profit, Nonprofit, and Public Organizations: Comparative Theory and Policy, Palgrave Macmillan; 2004th edition.