In fact, most governments don t know how much it costs to deliver many public services. Without such data, it is impossible to conduct fair competitions. Before agencies can make an informed decision about competitive contracting, they must first identify the total cost of in-house service. The task is not an easy one. Often, the cost of a single good or service is shared by several departments or activities, so administrators must decide how much of the cost to allocate to each part of the organization.
Many public agencies lack a consistent methodology for reporting costs.
A survey of the contracting practices of 120 cities, counties and district governments nationwide found that half the respondents had no formal method for analyzing and comparing costs. Part of the difficulty is inherent in the nature of the task. In complex organizations, large numbers of assumptions must be made about how costs which are incurred are to be allocated to various parts of the organization. Many costs are shared by a number of services, and there is often no one obvious way of assigning them to their sources. Cost often is an important consideration in the privatization decision, and officials should be aware of the true cost of both in-house and contracted services.