Contracting out : a study of the Honduran experience

This study analyzes the performance of private contractors in three sectors: housing and urban development, rural primary school construction, and rural road construction. Contrary to common belief, private sector construction was found to result in little improvement over direct public administration in terms of the quality of outputs, the time needed to complete projects, or the cost of construction. According to the report, this was due primarily to the country"s institutional environment. Contractors were constrained by complicated bureaucratic procedures, lack of competition, a government price system which decreased incentives for cost reduction, and compensation and salary laws. The study makes several recommendations for government initiatives to loosen these constraints. The study also identifies the disadvantages associated with privatization - lower community participation in certain projects and resistance among public employees who want to keep their jobs. In sum, policy decisions about contracting must be made within the context of broad national policy objectives.