Contracting Out and Trust in the Public Sector: Cases of Management from Hong Kong

Contracting out generates competition and market discipline that is expected help reduce cost and improve the quality of the services. Several problems were detected in contract management of the Hong Kong Housing Authority and they were related to decision-making, monitoring, evaluation and the system of accountability. An examination based on the ‘principal-agent’ perspective reveals several pitfalls of contracting out in the public sector. A lack of coordination, eagerness to cut costs by accepting the lowest tender bids, improper project supervision, and inadequate manpower resulted in serious problems. This paper suggests a more careful approach to the award of contracts, monitoring and quality assurance as well as the inculcation of a spirit of trust and cooperation between the principal and agent, instead of the customary adversarial approach.