Complex products and comprehensive service agreements: A case study of outsourcing in contract cities

This study investigates how outsourcing multiple public functions in a single contract increases the complexity of the services rendered under the agreement. We hypothesize that product complexity arises in these bundled service agreements due to several factors including diseconomies of scope, the “lock-in” problem, and communications problems between the contractor, the government and the public. We investigate these questions using a textual analysis research methodology to examine the initial contract documents that formalized an agreement between the City of Sandy Springs Georgia and the firm CH2M Hill. The results of this qualitative study identified several ways that different combinations of functions increased product complexity. It also revealed ways the contracts were designed to mitigate the risks of outsourcing multiple functions in a single contract.