Figure 1 . Outsourcing Framework
Source : Influenced by McIvor ( 2000 )
Local Government Act 2009 ( Qld ) which largely ignores social impacts including the impacts on employees and ratepayers . These activities usually represent large operational expenses of each local government namely water , sewerage and garbage services notwithstanding each local government may also implement at its own discretion a full cost pricing regime to suit its own operations ( Silvestre et . al 2020 ). How these initiatives have impacted ( positively or negatively ) the internal practices of Queensland local governments is an opportunity to be explored . Figure 1 provides a basic framework guiding the data collection and synthesis of this project investigating the opportunity to outsource a number of local government functions .
Full cost pricing is a pricing regime taking into consideration the full costs associated with the production and delivering of goods and services , including direct and indirect costs ( Taleb & Al Farooque 2021 ) and passing that on to consumers .
Full cost pricing has been advocated in local government to act as a benchmark against which pricing and production decisions can be made in the future for the benefit of the organisation ( McIvor & Ronan 2000 ). In its “ purest form ”, a full cost pricing framework reflects additional market and competitive considerations , as well as the need to achieve a rate of return on investments ( Petri 2021 ). Figure 2 demonstrates the operating cost incorporated in a full cost pricing model which include fixed costs and the day-to-day operational costs incurred in operating an organisation ( Gosselin & Journeault 2022 ).
Figure 2 - Full Cost Recovery Model
Source : McClain 2013
All costs are to be included in full price costing such as depreciation expenses , day-to-day operating costs including salaries , electricity , insurance , raw materials and repairs , but rarely externalities such as environmental impacts .
THE SCOPE OF THE REVIEW The review will focus on the elements of full cost pricing and outsourcing in Queensland local governments . The full cost pricing elements include direct costs , indirect costs , fixed and variable costs , opportunity and external costs particularly those , which have a social impact ( Medina-Mijangos et . al . 2021 ). The outsourcing elements will include cost analysis , core competencies , risk management , strategy and performance monitoring ( Huma , Ahmed & Najmi , 2020 ).
HISTORICAL BACKGROUND Consistent with similar trends in many countries , a range of neo-liberal economic reforms began in Australia with the National Competition Policy ( NCP ) introduced in the early 1990 ’ s which encompassed a broad range of microeconomic reforms including outsourcing and full cost pricing initiatives which substantially impacted the operations of Queensland local governments ( Hilmer 1993 ). The purported aim of these reforms was to improve public sector efficiency with a shift from accountability for processes to accountability for managing outcomes but without any consideration to the social or environmental impacts of introducing these reforms ( Rana et al . 2019 ). The days of caution and conservatism were past considerations , which were replaced with flexibility , risk-taking , and continuous improvement initiatives , which on the
surface appear to replicate the private sector ( Poppelwell 2022 ). The NCP reforms have had a profound impact to the structure of Queensland local governments delivering services like garbage services , reticulated water and sewerage services at full cost to residents who are required to pay for the cost to provide these services ( Hamnett 2020 ).
Successive Queensland state governments reiterated their commitment for these reforms by the continued redesigning of legislation such as successive local government legislation aiming to support efficiency and competition in the delivery of services imitating the operations of the private sector without consideration of externalities ( Exchange 2022 ). Since the introduction of NCP , Queensland local governments began outsourcing a number of their operations aiming for economic dividends and enhancing service delivery ( Productivity Commission 2005 ). However , the pace of these reforms since the 1990 ’ s has made it difficult to evaluate the impacts of implementation with many local governments failing to adopt policies and strategies to manage full cost pricing and outsourcing initiatives rather focusing on an ideology that the reforms are better for local government and their rate payers ( Elliott et al . 2022 ).
Regional , rural and remote local governments typically outsource professional services such as engineering , planning , health services and swimming pool services ( Ali et al . 2020 ). Whereby larger local governments are more likely to outsource recycling , construction , road building , road works and the maintenance of public open spaces . There are some LGAs that outsource to some extent their economic development functions ( examples like Toowoomba and Townsville but we should note their differing governance arrangement and scope of operation subtleties ). Outsourcing is not a one size fits all approach given the geography and dynamics of each local government is vastly different ( Warner & Hefetz 2020 ).
ECONOMIC DEVELOPMENT JOURNAL VOL 16 NO 3 2023 07