Transactional contracting, outsourcing, local government, public sector
New solutions such as quasi market arrangements, transactional contracting and outsourcing of service production have been incorporated into the reform agenda in an effort to address the growing challenges of delivering good quality healthcare in an efficient way for citizens. The rationale is generally that these forms of organizing the provision of services can potentially increase performance through more efficient use of resources, greater competitiveness and improved quality of services. However, outsourcing of public service production to private suppliers implies new control logics. We focus on the problems facing a regional health authority when they move from a relational-based intra-organizational governance form for the provision of ambulance services to a more formal outsourcing arrangement based on legal and transactional controls. The motivation for the paper stems from a desire to understand why an outsourcing process turned out to be so dramatic. The study is grounded in the contracting theory literature and the paper adopts a combined principal agent and transaction cost economics perspective to offer an explanation for the negative outcome in this case of public sector outsourcing. The paper increases our knowledge of why design and implementation of outsourcing models may create problems that impede and obstruct control in the public sector.