Contracting out is emerging as a common policy issue in a number of developing countries. The theoretical case for contracting out suggests many advantages in combining public finance with private provision. However, practical difficulties such as those of ensuring that competition takes place between potential contractors, that competition leads to efficiency and that contracts and the process of contracting are effectively managed, suggest that such advantages may not always be realized. Most countries are likely only to contemplate restricted contracting of small-scale non-clinical services in the short term. Prerequisites of more extensive models appear to be the development of information systems and human resources to that end. Some urban areas of larger countries may have the existing preconditions for more successful large-scale contracting.
PIP: In developing countries, public agencies are increasingly entering into contracts with other public or private agencies to provide health care services. These contracts usually cover nonclinical services such as building maintenance and management. In western European countries,however, even clinical services are put out to bid, and this practice is emerging in various forms in the rest of the world. Contracts may take the form of "blocks," which allow the continuation of a global budgeting system (a total amount is paid to cover all eventualities), "cost and volume" contracts, in which a total payment is specified for a total expected workload with variations subject to further negotiations, and "cost/case/day/service" contracts in which a fixed rate is specified for each item of work. Further variations exist in types of buyers and sellers involved (public, private, nonprofit, etc.) and in types of public agencies which purchase services (pure, quasi-, or "general practice fundholder," which offers contracts itself for secondary or tertiary services). Proponents of contracting claim that the practice will allow the introduction of market elements in a controlled way that will allow resource allocation to remain in public hands while avoiding some of the lack of efficiency seen in government bureaucracies. 4 questions remain to be addressed to determine the feasibility of contracting: 1) will real competition take place, 2) will competition promote efficiency, 3) are the necessary skills available for the effective management of the markets, and 4) is public financing viable? It is concluded that despite the theoretical advantages presented by contracting, the conditions do not exist for extensive use of this marketing tool in developing countries. However, real growth in this area may occur in urban areas of the larger countries.