Gary Sturgess: contestability with uninterrupted service

Contestability in the public sector requires there be viable alternatives for genuine competition. That means encouraging alternate providers, or having an alternate management team. ANZSOG’s Professor Gary Sturgess explains the options.

Contestability assumes that, wherever possible, the ultimate intervention should consist of the right to manage the service being exposed to competition. If this threat is to be credible, there must be a pool of alternative managers capable of stepping in, at relatively short notice, to contest the right to manage the service and assume responsibility for its delivery. If there is no alternative pool of management, then the threat of competition will not be credible.

Where a service has not traditionally been open to delivery by external providers, this will require commissioners to consciously develop such capability over time. Successful management of complex public services often requires a great deal of domain-specific knowledge, which serves as a formidable barrier to entry when external providers are invited to participate.

However, what is necessary to ensure contestability will differ from one service to another. There may be private providers of similar services who could quickly step in. In Australia, large private companies provide laundry services to private hospitals and nursing homes. Major Australian corporations already provide some (though by no means all) of the pathology services required by public hospitals.

In some cases, public enterprises from other jurisdictions might provide the contestability. The Australian state governments have not generally chosen to operate beyond their geographic boundaries, but state-owned enterprises from New Zealand provide weather forecasting and land valuation services in the Australian market. A commissioner might introduce contestability by sourcing management expertise from other governments.

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  • Robert Alder

    All public sector commissioners and every politician shoule read your article, as very few understand that contestability is NOT market testing and outsourcing. In my opinion, much of the outsourcing underway severely hinders nascent innovations such as Public Sector Mutuals, where the possibility of management, the workforce and unions working together actually exists.