Good Practice for Contracting Out Public Services

The objective of the good practice for contracting out public services is to ensure that the public authority as transferor and the civil society organisations as service providers would base their provision of the service on the same principles to make sure that goals important to the society are achieved.

All public services, which can be provided by ensuring the achievement of clear responsibility mechanisms and which are not prohibited to be transferred by the constitution can be subject to transfer to civil society organisations.

The objective for transferring a public service could be to improve or maintain the quality and availability of a service, to improve the efficiency of service provision or to achieve another socially accepted goal. The transferor and provider will be guided from the need to protect the public interest and the rights of third persons when transferring a public service.

Important concepts:
Public authority – the state, local governments and their agencies.
Contracting out public services – situation where the public authority transfers the provision of a public service to a private company, civil society organisation or other public organisation but maintains control and responsibility for the provision of the service.

1. Preparing the transfer

1.1. Upon preparing the transfer of the public service, the public authority will determine the content and objectives of the service based on the needs of the society and by consulting the consumers of said service. If necessary, civil society organisations will be engaged in the preparation process.
1.2. In planning the transfer, the following issues of the public service will be determined:

  • the long-term or social objective (e.g. improving welfare of the elderly; improving citizens’ choices, supporting small business, etc.)
  • direct goals (e.g. number of people helped back into employment, surface area of maintained land, etc.)
  • its content, incl. target group, time for service provision, quantitative and qualitative characteristics
  • performance indicators, both quantitative and qualitative
  • standards (e.g. worker qualifications, required licences, description of measures, etc.).

1.3. The public authority as transferor will provide principles for financing the service, taking into consideration all costs, investment needs and sources, as well as the financing distribution between the public authority and the end consumer.

2. Selecting a contractual partner

2.1. The public authority will treat all applicants who wish to provide the service equally.
2.2. The public authority will act pursuant to the nature of the service and the market situation when putting into place the service provider selection procedure. If required, provisions of the Administrative Co-operation Act, Public Procurement Act or a specific law regulating the service provision will be applied.

  • Organising a request for tenders is justified if the level of competition in the marketplace is sufficient, if the evaluation of service objectives is straightforward and if it is sufficiently simple to replace the service provider.
  • Selecting the service provider through negotiations is justified if the level of competition in the marketplace is insufficient, if specifying the objective of the service is complicated and if the public authority is prepared to be the service provider if necessary.
  • Planning and execution of the service in cooperation with a single provider is justified if the time and resources for transferring are limited, if there is only one provider on the market, if the public authority has limited capabilities to provide the service or if the environment for providing the service is unstable.

2.3. If possible, the public authority will assist in creating a market for said service.
2.4. Upon selecting the service provider, the public authority will notify in due time all interested parties of the opportunity for providing the service and related important information, the evaluation criteria thereof, will permit sufficient time to submit a tender and will only require the publishing of information directly related to the provision of the service.
2.5. If a public authority entity as incumbent service provider participates in the tendering procedure, the public authority will ensure its separation from the entity organising the service transfer in order to ensure equal treatment in the tendering procedure. In such case an impartial expert will be engaged in tender evaluation.

3. Conclusion of the agreement and negotiations

3.1. The parties will enter negotiations over the conclusion of the agreement by considering the interests of the other party and will take action to ensure that a binding agreement for cooperation is reached.
3.2. During negotiations, the parties will agree in all aspects relevant to the later performance of the contract, incl.

  • duration of the contract
  • further criteria for the service (e.g. location, terms for qualification of customers, standards for buildings and equipment, etc.)
  • service price
  • terms for payments and surplus distribution
  • procedure for applying incentives and sanctions
  • procedure for end consumer complaints and their review
  • principles for managing information and relations, incl. procedure for ordinary and extraordinary meetings, procedure for storing and exchanging data
  • procedure for amendment of agreements
  • procedure for resolving disputes, incl. engagement of an impartial arbitrator, terms for contract termination and compensation payment
  • other aspects affecting the contract, incl. application of relevant provisions and external standards (e.g. codes of ethics, professional standards, local government service contracting standards).

3.3. The parties will identify and share the risks incidental to performing the contract in proportion to their capability to bear them.

4. Contract administration and supervision

4.1. The principles for contract administration and supervision will be as simple and straightforward as possible and will be agreed during negotiations. Contractual parties will use all possible means during the contract term to accomplish the goals set in the contract.
4.2. Exercising supervision over the performance of the contract must be sufficient for the public authority and thereby the public to objectively assess the accomplishment of agreed goals and the conformity of payments made to contractual partners to relevant goals and legislation. Important contract supervision measures will be, among others:
– customer surveys and satisfaction surveys
– regular and unscheduled inspections, incl. evaluation of buildings, measures, activities and personnel
– examining agreed documents
– submission of reports on a regular basis containing previously agreed content
– financial audits
– impartial audits.
4.3. Upon the transfer of the public service, the civil society organisation will become responsible for the consequences of providing the service. Ultimate responsibility will always fall on the public authority.
4.4. In order to ensure that contractually agreed goals are achieved, the parties will:
– explain the obligations, objectives and evaluation criteria to their personnel
– ensure that their employees are aware of the operating principles of the public sector and the non-profit sector and their differences
– use all possible means to develop its capabilities and knowledge on providing the relevant public service
– inform each other of important developments in the service provision.