Agency theory and beyond: contracted providers' motivations to properly use service monitoring tools.

In an environment of increased contracting out for public services, ensuring contracted provider accountability is a key challenge facing public administrators (Bardach and Lesser 1996; Blasi 2002; Breaux et al. 2002; Coats 2002; Johnston and Romzek 1999). Agency theory is one of the major theoretical frameworks found in the contracting out literature (Arrow 1984; Eisenhardt 1989; Jensen and Meckling 1976). This theory offers one lens for understanding contracted provider accountability (Breaux et al. 2002; Coats 2002; Johnston and Romzek 1999; Kettl 1993; Romzek and Johnston 2005). Despite its widespread use, agency theory has many critics. A common criticism of agency theory is that it assumes that individuals and organizations are solely interested in maximizing their self-interest, ignoring the complexities of organizational life (Davis, Schoorman, and Donaldson 1997; Perrow 1986). This criticism is particularly relevant in the context of contracting out for social services where many contracted providers are nonprofits (Nathan 1997; Van Slyke 2002). Nonprofits tend to be mission driven (Cohen 2001) and are unlikely to be solely motivated by self-interest.

Stewardship theory has been proposed as an alternative to agency theory (Davis, Schoorman, and Donaldson 1997). Instead of being motivated by personal goals, stewardship theory assumes that individuals and organizations are interested in achieving collectivist goals. This article draws on both agency theory and stewardship theory as well as the literature on relational contracting in order to develop a fuller understanding of contracted provider accountability. It specifically examines the different reasons why contracted providers are motivated to properly use service monitoring tools.

This article defines a service monitoring tool very broadly as any source of information used by a government agency to monitor service inputs, outputs, and/or outcomes that a contracted provider is required to give to a government agency as a condition of a government contract. The government agency can use the information provided by a service monitoring tool to assess the extent to which the services the contracted provider is delivering are aligned with contractual provisions and the government's service delivery goals. As an example of a service monitoring tool, this study focused on reporting forms that early childhood programs in three communities in Upstate New York were required by government agencies to complete.

In recent years, growing attention has been paid to performance contracting (Behn and Kant 1999; Blasi 2002; Kettner and Martin 1995; Martin 2000, 2002). However, this study uses the broader term service monitoring tool rather than performance monitoring tool. Many of the government agencies included in this study only collected information on contracted providers' service inputs and outputs and did not attempt to evaluate service outcomes or the quality of services contracted providers were delivering. Although government reliance on process measures to monitor contracted providers is widespread, service inputs and outputs may or may not translate into desired outcomes and therefore are not true performance measures (Behn and Kant 1999).

Service monitoring tools are important mechanisms for ensuring contracted provider accountability because government agencies frequently lack the capacity to adequately monitor contracted providers themselves (Kettl 1993, 2000; Milward, Provan, and Else 1993; U.S. General Accounting Office 1997; Van Slyke 2003). For example, Cigler (1990) reports that nearly two-thirds of North Carolina county officials completing her survey on contracting out practices cited the "difficulty in monitoring the performance of contractors" as the "greatest disadvantage with contracting experienced by their government" (293). As a result of this lack of capacity to monitor contracted providers, government officials often rely on data collected by contracted providers as key sources of information (Brown and Potoski 2006; DeHoog 1984; Kettl 1993; Smith and Lipsky 1993). A contracted provider is properly using a service monitoring tool when the contracted provider reports the data collected by this tool in a timely manner and when the data are both accurate and complete.

The public administration literature has relied heavily on agency theory as the theoretical lens for explaining contracted provider accountability. Building on the work of Dicke (2002), Dicke and Ott (2002), and Van Slyke (2007), this article goes beyond agency theory and attempts to broaden the theoretical framework used to understand accountability in contracting relationships. It integrates the work on agency theory, stewardship theory, and relational contracting and identifies different reasons why contracted providers are motivated to properly use service monitoring tools. To examine different motivations for proper tool use, seven case studies were conducted on early childhood programs in three communities in Upstate New York. The case studies specifically focused on the reporting forms that the early childhood programs completed. This article concludes by discussing the theoretical and public management implications of its findings.

AGENCY AND STEWARDSHIP THEORIES