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In her textbook, Third-Party Governance: Using Third Parties to Deliver Governmental Goods and Services, Jessica Terman, an associate professor at the Schar School of Policy and Government at George Mason University, provides a primer on an important instrument of public policymaking. The book is published by Routledge, the world’s leading academic publisher in the humanities and sciences.
As Terman writes, while some public services are provided directly by the government, such as the United States Postal Service, other services are provided by a third party working along with, or for, the government. Some services, such as student loans, are provided by private businesses on behalf of the federal government, as exemplified by Sallie Mae. Other services, such as refugee resettlement, are provided in conjunction with nonprofit organizations. Still other public services are provided by lower levels of government with federal funding.
This contracting out of public services is what Terman refers to as “third-party governance.” She wrote this book to ensure her students graduate with a solid grasp of how the government outsources some of its basic functions.
The reception of Third-Party Governance has been strong. Schar School alumnus Sean Kesselring (MPA ’24), said the book provided him “with a completely new perspective on contracting,” one he now applies to his work as an analyst at Booz Allen Hamilton.
Terman’s book “provides a critical lens on the complexities of government contracting and outsourcing,” echoed Carl Willis (MPA ’21), a program manager in the federal government. “Her book highlights the challenges of managing vendor relationships, ensuring accountability, and navigating the intricate web of third-party service delivery. These are challenges that I face daily in overseeing IT projects and coordinating with external partners.”
We sat down with Terman to discuss the importance of this topic to public administration graduate students.
What are the questions that policymakers must consider when deciding when to contract out public functions to a third party and when to provide those public services themselves?
It's important for policymakers to consider what I call the ‘make or buy’ decision. Does the government want to ‘make’ or provide the service, or does it want to ‘buy’ it? But the core thing that I want people reading the book to realize is that the private and nonprofit sectors are tools that the government can use to carry out public purposes. It’s also important to bear in mind that just because the private sector is carrying out a governmental function, it doesn’t mean that government all of a sudden got ‘smaller.’ For instance, people often point to the size of the federal workforce but ignore that we have many more people that work in the private sector carrying out the government’s work. And it’s useful, particularly now in today’s climate, to think about this as people discuss contracting out government services and what that really means.
What are some of the potential challenges involved in leveraging ‘third-party governance,’ and how can policymakers overcome them?
One of the challenges is that there are a lot of rules and regulations that pertain to the provision of public goods and services that can be challenging to enforce. The Davis-Bacon Act, for example, requires that federally funded projects provide a prevailing wage. ‘Buy American’ provisions are another. There are a number of regulations that the private sector doesn’t have to follow, unless they are factored into a partnership agreement. Critics would say that the government using the private sector is a way to avoid regulations like the Davis-Bacon Act or ‘Buy American..’
But the most important thing, with regards to ensuring the overall effectiveness of third-party governance, is effective monitoring and contract management. That means that, contractually, performance measures are in place with reporting and transparency. But the more complex the asset is, whatever you are contracting out, the harder it is to monitor because by contracting out government functions, the government loses technical expertise. So, as government contracts out something complex—space travel for instance—and if you contract out so much that you no longer have the in-house expertise to monitor, that is problematic. The implication of this is that contracting is more expensive than we think it is. Appropriate contract management is not cheap, at least if it is done right.
What are some of the benefits of third-party governance as opposed to the direct provisions of public goods and services?
I think the benefits are tremendous. Government cannot do everything, nor should we want it to do everything. No one is a jack-of-all-trades, and we want to make use of the skills and expertise that already exist in the private market. I would like to see our government focus on its core competencies and then contract out the things that other people do better.
The Schar School’s Master of Public Administration program is ranked No. 39 by U.S. News & World Report and includes concentrations in emergency management and homeland security (No. 4), and nonprofit management (No. 13).