Effects of Capabilities on the Performance of Public Sector Service Contracts

ABSTRACT With the intent of contributing to the Applied Strategy literature in Public Management and assisting public manager decision-making, this research investigated the effects of public and private capabilities on cost and quality of outsourced public sector service contracts. To do so, we studied 167 service contracts between a Federal Public Administration entity and various private providers, during the period from 2002 to 2015. Data collected were organized in a specific dataset and analyzed using multivariate regressions. Results suggest that, in the face of an environment characterized by modest incentives and a low level of competition between companies, public agent wages, training and experience have contradictory effects, or no effects at all, on contract performance, particularly for cost indicators. With respect to private capabilities, this study verified that company experience has a positive influence on quality indicators; however, from the public interest point of view, financial capacities – in particular general liquidity – negatively affect cost indicators. These results contribute advances in the discussion about the heterogeneities present in buyer-supplier relations in public contracts and their effects on performance. JEL Classification Codes: H83, P47, R5.