contracting-out


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contracting-out

  1. the nonparticipation in some specific scheme operated by a company or government in favour of an alternative arrangement; for example, in the UK, an employee may opt out of his employer's company PENSION scheme, choosing instead to invest in a personal pension plan.
  2. the placement of some or all of a firm's input requirements (raw materials, components, services) with independent suppliers. Whether or not a firm provides these resources itself through backward vertical integration or relies on outside suppliers will depend on a number of financial, technical and strategic considerations. See MAKE OR BUY DECISION, OUTSOURCING.
  3. the putting-out to private firms of contracts for the provision of services to a public institution. The term ‘contracting-out’ has assumed a particular significance in the government's current privatization programme, referring specifically to a situation in which a publicly owned service such as the National Health Service employs private sector firms to supply, for example, laundry, cleaning and catering services. The logic for this is that it is more cost effective for these services to be bought in under conditions of competitive tendering by specialist firms enjoying economies of scale than for them to be provided by hospital staff. See TRANSFER OF UNDERTAKINGS, NATIONALIZATION VERSUS PRIVATIZATION).
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