Delivering public services : a greater role for the private sector : an exploratory study in four countries.
Date: 2015-09-17
Institutions: Eurofound
Subjects: EU employment policy, European social policy, Lithuania, Spain, Sweden, United Kingdom, early childhood, education policy, health policy, private sector, public service, report, social services

Delivering public services: 
A greater role for the private sector?

An exploratory study in four countries

Coordinating the Network of EU Agencies 2015

Delivering public services: 
A greater role for the private sector?

An exploratory study in four countries

Wyattville Road, Loughlinstown, Dublin 18 D18 KP65, Ireland. – Tel: (+353 1) 204 31 00 
Email: information@eurofound.europa.eu – Web: www.eurofound.europa.eu

When citing this report, please use the following wording:

Eurofound (2015), Delivering public services: A greater role for the private sector? An exploratory study in four
countries, Publications Office of the European Union, Luxembourg.

Authors: Elma Caicedo and Egidijus Barcevičius, Public Policy and Management Institute (PPMI)

Case study authors: Lithuania: Elma Caicedo, Vaida Gineikytė and Mantas Pupinis (PPMI); Spain: Eloísa del Pino
(Institute of Public Goods and Policies, IPP-CSIC); Sweden: Dominique Anxo (Department of Economics and
Statistics, Linnaeus University and Centre for European Labour Market Studies); UK: Jill Rubery and Mathew
Johnson (Manchester Business School)

Research managers: Klára Fóti and Robert Anderson

Eurofound project: Delivering public services: A greater role for the private sector?

Luxembourg: Publications Office of the European Union, 2015

doi:10.2806/3787
ISBN: 978-92-897-1390-0

© European Foundation for the Improvement of Living and Working Conditions, 2015

For rights of translation or reproduction, applications should be made to the Director, European Foundation for the Improvement of
Living and Working Conditions, Wyattville Road, Loughlinstown, Dublin 18 D18 KP65, Ireland.

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Executive summary

Introduction

1. Aims and research approach 

2. Country study: Lithuania

3. Country study: Spain

4. Country study: Sweden

5. Country study: United Kingdom

6. Main findings

7. Conclusions and policy pointers

Bibliography 

Contents

1

3

5

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63

73

77

Abbreviations used in the report

CCT

DWP

ECEC

EPEC

ESF

GDP

HSCIC

ISCED

LDB

LOV

LTCS

MRI

NGO

NHS

OECD

PFI

PIQUE

PPMI

PPP

compulsory competitive tendering 

Department for Work and Pensions (UK) 

early childhood education and care 

European Public–Private Partnership Expertise Centre 

European Social Fund 

gross domestic product

Health and Social Care Information Centre (UK)

International Standard Classification of Education

Lithuanian Labour Exchange (Lietuvos Darbo Birža)

Act on System of Choice in the Public Sector 2008:962 (Lag of valfrihetssystem, 2008:962) (Sweden)

Long-term Care System (Spain)

magnetic resonance imaging

non-governmental organisation 

National Health Service (UK)

Organisation for Economic Co-operation and Development

private finance initiative

Privatisation of Public Services and the Impact on Quality, Employment and Productivity research 
project

Public Policy and Management Institute

public–private partnership

SIMAP

Sindicato de Médicos de Asistencia Pública (Spain)

SNS

SSGI

UNFPA

WHO

Sistema Nacional de Salud (Spain)

social service of general interest

United Nations Population Fund

World Health Organization

Country codes EU28

AT

BE

BG

CY

CZ

DE

DK

EE

EL

ES

FI

FR

HR

HU

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Germany

Denmark

Estonia

Greece

Spain 

Finland

France

Croatia

Hungary

IE

IT

LT

LU

LV

MT

NL

PL

PT 

RO

SE

SI

SK

UK

Ireland

Italy

Lithuania

Luxembourg

Latvia

Malta

Netherlands

Poland

Portugal

Romania

Sweden

Slovenia

Slovakia

United Kingdom

Executive summary

Introduction 

Welfare  systems,  whose  role  is  to  promote  the  well-being  of  citizens  through  high  levels  of  social  inclusion  and
protection, are at the heart of the European social model. Up to the 1970s, across Europe, delivery of public services was
almost exclusively the responsibility of the state. Since then, many Member States have extended the role of the private
sector in delivering public services in pursuit of improved choice, quality and efficiency.

This report examines how the role of the private sector has grown in the provision of public services in four EU Member
States: Lithuania, Spain, Sweden and the UK. It explores the processes by which the private sector became increasingly
involved and the implications for access, quality and effectiveness of services for service users. With an explicit focus
on the user perspective, the report is based on case studies in these four Member States drawn from the following sectors:
healthcare, long-term care, early childhood education and care (ECEC), and employment services. The report assesses
developments in the delivery of these services and also addresses the impact of the economic crisis on the changing
public–private sector relationship in provision. 

Policy context

The role of the private for-profit and non-profit sectors in delivering public services is the subject of an ongoing debate
both at EU level and within Member States. There is a need for more and better-quality services to cater for the diverse
and  increasingly  complex  needs  of  people  who  are  either  affected  by  a  particular  life  event,  such  as  unemployment,
long-term illness or disability, or who use services during a specific life phase, such as education. The ultimate goal is
to improve people’s quality of life. The Social Investment Package emphasises the importance of involving private for-
profit and non-profit sector resources to complement public efforts. In the context of goals for economic growth and jobs
in the Europe 2020 strategy, the need to maintain welfare services amid increased pressure on budgets has prompted
Member States to turn to different ways of engaging the private sector in the delivery of services. In the face of reduced
public budgets, Member States need new solutions to sustain public services. 

Key findings

n The  main  driver  behind  the  increasing  role  of  the  private  sector  in  the  two  Member  States  with  well-established
welfare systems (Sweden and the UK) has been the expectation of quality and efficiency gains. The two Member
States with less-extensive welfare systems (Lithuania and Spain) have tended to increase their reliance on the private
sector on the grounds of budgetary constraints. 

n

In Spain, Sweden and the UK, the opening of service provision to market competition has been mainly policy-driven.
In Lithuania, the expansion has been more bottom-up, with private providers being established to fill gaps in public
provision – in ECEC and education, for instance – before the adoption of policy on tax-paid private provision. 

n Provision  of  public  services  and  the  role  of  private  providers  in  their  financing,  delivery  and  management  are
regulated across Member States mostly at sector level, with no evidence of all-encompassing regulation of public
services at national level in any of the case study countries.

n

In recent years, the selected Member States increased their outsourcing of public services. While in Sweden this was
aimed at preserving access and quality simultaneously (by solving a capacity problem in employment services when
the  number  of  recipients  increased),  in  the  other  three  countries  outsourcing  of  public  services  led  to  increased
co-payments on the part of service users, especially in long-term care. Employment services were an exception to
this trend, remaining tax-financed across all cases.

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Delivering public services: A greater role for the private sector?

n The private provision of public services across the selected Member States is managed through a variety of methods,
including contracting out via public procurement procedures and voucher schemes that aim to maximise user choice.
When  contracting  authorities  employ  procurement  procedures,  the  established  selection  criteria,  especially  in  the
case  of  long-term  care,  favour  price  over  quality  in  Spain  and  the  UK.  In  Sweden,  quality  outweighs  price.  In
Lithuania, public procurement is not used in the management of public services. 

Policy pointers 

Coherence and continuity
n Consider  existing  non-profit  sector  solutions  for  specific  service  needs  and  seek  avenues  to  collaborate  with  and
protect providers so as to harness the experience they have built up over the years. The case studies illustrate that
organisations in the non-profit sector cannot compete for large procurement contracts against consolidated private
for-profit firms that benefit from economies of scale.

n Learn from insourcing or ‘remunicipalisation’ exercises, as expanding the role of the private sector is not the only

means of improving the quality of services. 

Monitoring and evaluation
n Apply uniform performance indicators for quality of services regardless of the nature of the provider delivering them.

n Develop  mechanisms  for  systematic  monitoring,  evaluation  and  oversight  of  service  provision  of  all  providers  of
public services at the level of the contracting authority. Ensure that the results of these mechanisms feed into public-
service-related policy and practice.

n

Improve the technical capacity of governments to establish mechanisms and conditions for fruitful collaboration with
the  private  sector  through  sharing  the  findings  of  systematic  evaluations  and  state-of-the-art  research  on  public
services and how they are managed. It is also important to ensure that governments and public servants have the
administrative capacity to implement policy decisions. 

n Develop a methodology for calculating all the costs involved when service provision is contracted to private sector
organisations. This methodology should include the administrative costs related to public sector commissioners and
contract managers and any cost penalties incurred for variations to agreed services or products, or as a result of early
termination of underperforming contracts. 

Risk aversion 
n Minimise the risk of service contract failure by studying the conditions under which this has occurred in the past and
identifying lessons learned. Ensure that those handling such contracts have the administrative capacity to do so. 

n Ensure appropriate contingency planning, given the high societal cost of interruptions to public service delivery, so

as to avoid discontinuity of public service provision in the event of contract failure. 

n Ensure transparency in the financing and ownership of public service contractors, which may be backed by private
equity and exposed to high levels of financial risk, so as to avoid the detrimental effects of ownership change on the
end users of the service. For example, by reducing the volume of services contracted by single procurement contracts,
contracting  authorities  would  reduce  the  opportunity  for  large  businesses  to  dominate  and  allow  other  actors  to
compete. 

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© European Foundation for the Improvement of Living and Working Conditions, 2015

Introduction

Public  services  are  at  the  heart  of  the  European  social  model,  the  ambition  of  which  is  to  achieve  high  levels  of
employment in combination with a high degree of social protection and inclusion. While historically such services were
largely provided by public agencies, and often with exclusive rights, the private sector (including both non-profit and
for-profit organisations) is being increasingly relied upon for the provision of social services across the EU. 

These public services include social services of general interest (SSGIs), which are the focus of the Social Investment
Package launched by the European Commission in 2013. The improvement of these services is also high on the agenda
at Member State level. Excluding cash benefits and considering only in-kind services, SSGIs cover: healthcare, long-
term care, childcare, education, social housing, and employment and training services (European Commission, 2015c).
This report assesses developments in the delivery of services in aspects all of these areas apart from social housing.

While no data are available on the degree of privatisation across Member States and across sectors, trends in specific
social  services  illustrate  the  extent  of  the  private  sector’s  role  in  delivery  of  public  services.  For  example,  in  early
childhood education and care (ECEC), private funding in Member States in the OECD varies from 5% or less of overall
funding in the Benelux countries to upwards of 25% in Austria and Germany (OECD, 2013). As the European social
model is characterised by the all-encompassing welfare state, public spending on ECEC is higher in EU Member States
when compared to other member countries of the OECD (OECD, 2013). 

EU Member States are increasingly adopting public–private partnerships (PPPs) in public services, including in SSGIs.
PPPs are a form of private sector cooperation with government in the provision of public infrastructure and services,
which  may  involve  collaborative  definition  of  goals  and  objectives  and  sharing  of  risks  and  responsibilities
(Public–Private Partnership in Infrastructure Resource Centre, 2015). As illustrated in the healthcare case study from
Spain, the role of the private sector in PPPs can go beyond delivery of services to include management and, potentially,
financing, although this is less likely in contracting arrangements. Healthcare is by far the largest sector as far as PPPs
in  SSGIs  are  concerned,  and  comes  second  only  to  transport  in  terms  of  number  of  transactions  and  value  of  PPP
projects. According to data from the European Public–Private Partnership Expertise Centre (EPEC), in 2014 some 15
PPP health transactions worth €2.2 billion were completed, a marked increase from 12 projects worth €1.5 billion in
2013  (EPEC,  2014).  However,  education  –  the  third  largest  sector  in  terms  of  number  of  deals  and  fourth  largest  by
aggregate value – has shown a 33% decrease in PPPs over 2013. 

Of all EU countries, the UK has by far the largest PPP uptake; in 2014, its aggregate value of PPP projects amounted to
€6 billion. Other Member States with high PPP values include Belgium, Germany, Italy and the Netherlands, among
others. The countries that joined the EU since 2004 have a very low uptake of PPPs; none appears among the 10 Member
States with the highest PPP uptake. 

The  private  sector  has  been  engaged  across  Member  States  with  the  apparent  aim  of  increasing  quality  of  services,
customer choice and efficiency. This development has been partly driven by ideological views and a push for ‘new public
management’  –  a  framework  that  emphasises  the  autonomous  management  of  public  services  (a  purchaser–provider
split), leading to increased competition for the provision of these services (Larbi, 1999). The arguments in favour of this
approach  exerted  greater  influence  during  the  economic  crisis,  when  public  funding  to  maintain  welfare  states  was
insufficient  amid  unfavourable  demographic  trends  (such  as  population  ageing  and  smaller  families)  and  adverse
economic  conditions.  However,  it  is  feared  that  this  increased  role  for  the  private  sector  will  reduce  the  quality  of
services as an effect of cutting costs, mostly through increased pressure on workers, and that it will lead to increasingly
unequal access to services for all, undermining the coverage of the welfare state. 

An increasing reliance on the private provision of public services is apparent throughout Western Europe since the 1970s
(Wollman, 2014). Despite this, there has been relatively little systematic and comparative analysis of this phenomenon,

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Delivering public services: A greater role for the private sector?

particularly  since  the  recent  economic  crisis.  This  exploratory  study  draws  on  qualitative  data,  gathered  through
interviews and existing (albeit limited) sources, to analyse the growth of the private sector in Lithuania, Spain, Sweden
and the UK. (The next chapter provides a rationale for this selection of countries.) In doing so, it aims to answer the
following questions. 

n Has there been an increase in the role of the private sector in the delivery of public services over the past decade?

n Which sectors have been most affected and least affected? 

n What are the key drivers behind the increased role of the private sector in public service provision?

n What role has the economic crisis played in the increased role of the private sector in public service provision? 

n How is the private sector’s role in provision of public services managed across countries and across sectors?

n How is the private sector’s provision of public services financed across countries and across sectors? 

n What are the main outcomes of an increase in the role of the private sector in public service provision across countries

and across sectors, especially in relation to access, quality and effectiveness?

Through an analysis of the sectors most affected in four countries with different social models, the research explores the
different  ways  in  which  private  for-profit  and  non-profit  actors  –  referred  to  throughout  as  private  providers  –  have
increased their role in service delivery. It also considers the implications of this development, most importantly as it
affects the service users, particularly regarding access, quality of the services received and efficiency of service delivery.

Access relates to both affordability and availability of services, if and when needed.

Quality of services is understood as meeting the needs of the service users both in terms of responding to individual or
personalised needs and in providing comprehensive cover.

Effectiveness means  either  success  in  reaching  targets  or  cost-efficiency  of  public  services  delivered  by  private
companies.  It  also  relates  to  the  extent  to  which  targets  set  by  legislation  or  specific  service  agreements  have  been
achieved. Efficiency is introduced as an alternative concept to effectiveness  to address the lack of disaggregated data to
facilitate comparison between the effects of private and public provision of a given service. 

The analysis of social policies in the four selected countries allows consideration of how different social policies met the
challenges of the crisis and the role the economic downturn may have played in the increasing involvement of the private
sector  in  public  service  provision.  Due  to  the  specific  focus  of  this  study  on  outcomes  for  the  service  user,  working
conditions of staff employed in private and public providers are not considered in detail. 

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© European Foundation for the Improvement of Living and Working Conditions, 2015

Aims and research approach

1

This study is designed to shed light on the increased role of the private sector in the delivery of public services in four
countries: Lithuania, Spain, Sweden and the UK. Each country study includes three sector-specific case studies. These
case studies analyse policy and practice within specific SSGI sectors, with a focus on the implications for the service
user. The inclusion of three sector-specific case studies from each country enables a comparative analysis of different
sectors in one country, as well as one sector across countries. The case studies involved desk research on the role of the
private sector and a minimum of three interviews per case study. Interviewees included policy-level stakeholders, service
users and service providers, or associated structures representing the latter two.

The  selection  of  these  four  countries  reflects  the  exploratory  and  comparative  nature  of  the  research,  enabling
information to be gathered on the extent and effects of the private sector’s role in public service delivery in contexts
where different historical, political, structural and economic factors have shaped the development of the welfare state.
Hence,  countries  with  distinctive  social  models  were  chosen  for  analysis.  The  countries  also  differ  in  terms  of  their
resilience to the economic crisis and the measures they took in response to it. This diverse sample enables an exploration
of trends in the role of the private sector in public service provision in specific countries; the analysis does not claim to
represent trends across the EU as a whole. 

Different social models 

A summary of the social models of the four case study countries follows, describing their SSGI provision and the role
of the private sector. 

Lithuania
Lithuania  was  relatively  late  in  developing  its  social  model,  which,  overall,  is  characterised  by  low  public  spending.
Before  the  crisis  in  2007,  this  Baltic  state  spent  14.4%  of  its  then  growing  gross  domestic  product  (GDP)  on  social
protection, almost half the EU27 figure of 26.1%. The country has an ambitious and broad-reaching universal coverage
policy, extending to all levels of care, education and health. However, as is the case with the other Baltic states, Lithuania
collects less tax revenue than the EU28 average rate, which leads to a lower level of social spending. Overall, the social
protection system is built on social insurance (contributory) and social assistance (non-contributory). Social dialogue is
underdeveloped, and both union membership and collective bargaining coverage are low. The minimum wage, one of
the lowest in the EU28, is regulated at national level by labour law and constitutes the income of over one-fifth of the
workforce. 

Since regaining independence, Lithuania has moved away from the all-encompassing public provision of services and
towards  the  dismantling  of  monopolies  and  an  increase  in  private  sector  participation. To  some  extent,  however,  the
institutional  framework’s  path  dependence  (reliance  on  long-standing  practices  and  mindsets),  alongside  a  lack  of
funding and skills, has prevented the entry of private service providers in areas such as long-term care, social care and
childcare, among others. By 2014, private actors were starting to play a more significant role in health, employment
services, elder care and, with recent reforms, higher education. However, public entities remain dominant in most SSGI
sectors. In 2015, the Lithuanian government is preparing a bill on the social model, which, if accepted, will be a move
towards  a  more  liberalised  labour  market  in  line  with  the  2014  Council  Recommendation  for  the  national  reform
programme.

Spain
Due to its long history of military dictatorship, Spain also has a relatively short history of social spending and the welfare
state. Here, the welfare state centres on social security, universal coverage for health and education, and unemployment
benefits. The latter, however, are to some extent undermined by a steady move towards liberalised employment, which
facilitates  insecure  casual  and  temporary  work  arrangements.  In  2004,  as  an  expansion  of  the  welfare  state  amid
economic  growth,  the  country  began  introducing  universal  long-term  care  and  early  childhood  education.  Social

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Delivering public services: A greater role for the private sector?

spending, slightly below the EU28 average, has been moving towards convergence with continental standards. However,
due to the ageing of the population, much of this spending goes towards pensions and healthcare, with less invested in
education. 

Since its integration into the European Community in 1986, Spain has diversified social service provision to include
private and third-sector organisations. The drivers behind this include rising public debt and the public perception of
inefficient public organisation, as evidenced by poor infrastructure, matched with expectations that privatisation would
bring about both essential investment and the cost-effectiveness required for sustainability. An interesting and relevant
characteristic of the Spanish welfare state is its high level of decentralisation, as evidenced by over one-half of all social
spending occurring at regional and local government levels.

Sweden
Sweden’s social model is characterised by high levels of social spending and public sector participation in all levels of
service  provision.  In  terms  of  welfare  policy,  social  protection  coverage  is  universal.  It  is  also  egalitarian  in  nature,
backed by strong work–life reconciliation measures. Sweden has one of the most equal income distribution levels of all
Member States. Collective bargaining plays a strong role and is protected by the country’s constitution and labour law.
In  many  areas,  including  the  regulation  of  the  minimum  wage,  collective  agreements  actually  take  precedence  over
labour law. Employment policy in Sweden reflects a good balance between employee rights and employer flexibility and
is backed by active labour market policies. 

Following the banking crisis of the 1990s, Sweden opted for deregulation, liberalisation and privatisation. Previously
protected  activities  became  exposed  to  competition  between  suppliers  of  goods  and  services.  In  social  services,  this
affected employment, health, education and elder care. In education, the recent introduction of a voucher system allowed
publicly subsidised private schools to enter the market.

UK
Under  the  UK  social  model,  the  main  pillars  of  social  policy  are  welfare  and  employment. Welfare  policy  is  mostly
liberal: there is no universal coverage; unemployment benefits and pensions are low; and care services such as childcare
and elder care are delivered by private actors and at least partly financed by service users. The UK’s employment policy
is  characterised  by  low  spending  on  active  labour  market  policy  measures,  and  poor  labour  organisation  and  social
dialogue. This has resulted in inadequate employment protection rights and employer-led flexibility, as evidenced in the
proliferation of low-wage casual and temporary work arrangements. 

Private sector involvement in the provision of public services is well established in the UK, first driven by compulsory
competitive tendering (CCT) during the 1980s and 1990s, and the government policy known as ‘best value’ during the
2000s, which opened up considerable parts of the civil service, local authorities and the National Health Service (NHS)
to competition. Local government was particularly affected by privatisation, and direct spending on staffing costs now
makes up less than 50% of total annual revenue costs across all service areas, with social services particularly reliant on
the private, voluntary and independent sectors.

Services most affected

Across  the  four  countries  chosen  for  analysis,  expert  assessment  of  existing  data  on  public  versus  private  providers
identified  the  following  areas  as  being  most  affected  by  private  sector  involvement:  ECEC;  compulsory  education;
employment services; elder care and home care; and primary to tertiary healthcare. These are broad categories; the case
studies  focus  on  more  specific  services,  described  further  down. Table  1  provides  details  on  the  sectors  and  services
selected for study in each of the four countries.

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Delivering public services: A greater role for the private sector?

Table 1: Case study sectors and services

Lithuania

Spain

Sweden

United Kingdom

Healthcare

Primary and secondary
healthcare

Tertiary healthcare

ECEC

ECEC

Employment services

Employment and training
services

Long-term care

Home-help services
Long-term care and social
services

ECEC and compulsory
schools

ECEC

Public employment services Employment and training

for job-seekers

Municipal home-care
services

Adult social care
(domiciliary and home care)

Note: The choice of sectors in the case study countries was based on an expert assessment of existing data on the ratio of public versus
private providers, and their users and workers. 
Source: Prepared by authors

Key terms used in the report

Public services refer specifically to social services, which in Europe have come to be called social services of general
interest (SSGIs). The services included in this research are: 

n healthcare;

n

employment and training services for job-seekers;

n ECEC;

n primary and secondary education;

n

long-term care (European Commission, 2015c).1

Healthcare  services include  all  services  dealing  with  the  diagnosis  and  treatment  of  disease,  or  the  promotion,
maintenance and restoration of health. They include personal and non-personal healthcare services (WHO, 2014; WHO,
2002).2 Healthcare delivery is categorised in three levels: primary healthcare is a patient’s first point of contact with the
healthcare system and may serve as the basis to further levels of care; secondary healthcare is specialised care provided
by  a  physician  on  the  basis  of  referral  from  a  primary  physician;  and  tertiary  healthcare  is  highly  specialised  care
provided  in  hospital  settings  (WHO,  2004).  The  case  studies  include  primary  and  secondary  healthcare  services  in
Lithuania and tertiary healthcare services in Spain. 

Employment and training services for job-seekers refer to all employment services provided by public authorities
with  an  explicit  or  implicit  ‘mission  of  general  interest’  for  different  user  groups,  such  as  unemployed  job-seekers,
economically  inactive  people,  employed  job-seekers  and  employers  (Polacek  et  al,  2011).  Employment  services
examined in the current research include training and matching services in Lithuania, Sweden and the UK. 

1

2

Social housing, although included in SSGIs, was not analysed in any of the 12 sector-specific case studies. 

Non-personal  health  services  are  actions  directed  either  towards  people  as  a  group  (such  as  health  education)  or  towards  the
non-human components of the environment (for example, basic sanitation and waste disposal). They usually produce significant
positive effects or reduce possible negative effects of individual or collective actions.

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Early childhood education and care (ECEC) includes all arrangements for providing care and education to children
under  the  compulsory  school  age,  regardless  of  setting,  funding,  opening  hours  or  programme  content.  This  study
focused on ‘institutionalised’ ECEC in Lithuania, Sweden and the UK. 

Compulsory  education refers  to  levels  1–3  of  compulsory  education  as  defined  in  the  International  Standard
Classification of Education (ISCED) in 2011. The Swedish case study on ECEC analyses pre-school and compulsory
education providers as both these levels are covered by the same providers and are subject to the same legislation. 

Long-term care refers to care services for older, frail, dependent or disabled people needing daily living support over a
prolonged period of time (OECD, 2011b). While a variety of terms are used to refer to long-term care, a distinction can
be made between domiciliary or home-help services and residential care. Domiciliary or home-help services encompass
a  range  of  home-based  services  to  individuals  whose  personal  independence  is  restricted  or  who  are  undergoing  a
personal or family crisis; the case studies examine these services in Sweden and the UK. Telecare – assistance from
trained carers via a hands-free communication device – falls under this category. Residential care, examined in one of
the UK case studies, involves the provision of services in a centralised location (outside the service user’s home). 

Privatisation  of  public  services  or  greater  private  sector  role  in  public  service  provision refers  to  expanded
opportunities for the private sector to deliver public services through one of the following means:

n

the contracting of private companies (regarding service, management, lease contracts or social impact bonds), but
with public oversight through regulatory and monitoring mechanisms;

n PPPs;

n demand-side funding (direct funding or vouchers);

n

service users’ contributions (for example, fees and co-payments).

8

© European Foundation for the Improvement of Living and Working Conditions, 2015

Country study: Lithuania

2

Overview

Since regaining independence in 1990, Lithuania has moved from the all-encompassing public provision of services to
the dismantling of monopolies and allowing private sector participation in the economy, including provision of SSGIs.
The  1996  Law  on  Public  Organisations,  which  in  essence  decentralised  public  social  services,  initially  facilitated
involvement of private providers across different sectors. However, a lack of political will, funding and skills – caused
by path dependency and the existing institutional framework and capacity – prevented, at least to some degree, the entry
of private providers into this field. Even though private actors were starting to play a more significant role in some fields
by 2014, public entities remain dominant in the provision of public social services. 

The  sectors  analysed  for  Lithuania  have  seen  the  biggest  increase  in  the  role  of  the  private  sector:  healthcare,  adult
training and employment services, and ECEC. Table 2 summarises the main trends regarding the private sector’s role in
these areas.

Table 2: Role of the private sector in the case studies of Lithuania

Sector

Employment and training services

ECEC

Primary and secondary healthcare

Source: Prepared by authors

Brief description

The provision of employment services to the unemployed and those about to lose their job was opened to
private providers through the introduction of a voucher system for non-formal and formal training in 2012.
This introduced competition and gave clients a choice of providers.

With considerable growth in demand for kindergarten provision in cities, the role of private providers has
become increasingly important. The financing for public and private providers differs in favour of the
former. Two Bills have favoured competition between private and public providers through the liberalisation
of requirements for establishing a kindergarten in 2010 and the introduction of a voucher scheme in 2011.

From 1990, the state financed all healthcare services. Following restructuring, however, financing of dental
care and pharmaceuticals were given over almost completely to the private sector, with some compensation
provided to vulnerable groups (for example, medicine for older people). Healthcare – from primary to
tertiary level – is financed by the state and delivered by both public and private providers. The state has
been compensating licensed private providers for approved services at primary, secondary and tertiary levels
since they began providing these services. A legislative basis for this was established through case law by
the Constitutional Court in 2013.

Interestingly, none of the above sectors is considered to be a ‘social service’ in Lithuania. The services that fall under
this definition, such as elder care, social work services, domiciliary care and social housing (Valstybės žinios, 2006) are
regulated by the 2006 Law on Social Services. It established a mixed economy of care, whereby either private (for-profit
or non-profit) or public providers can provide social services for different client groups, and clients can choose their
service provider. There was little take-up among for-profit service providers in these sectors due to low profit margins
and  low  levels  of  experience  of  providing  these  services,  as  the  social  care  system  only  began  in  1990. The  market
principles set out in the 2006 law did not apply to social care, as the legislation did not provide for the possibility of
private sector participation (Žalimiene and Lazutka, 2009).

However, there has been extensive involvement of the third sector in delivering residential long-term care, especially
through non-governmental organisations (NGOs) affiliated with parishes. In the case of social housing, the private sector
is only involved in a financial capacity; that is, accredited banks provide credit for shortlisted beneficiaries of partially
state-subsidised housing. 

The role of private providers in terms of delivery, finance and regulation of the services provided has been limited to
delivery. The private sector is engaged in financing only insofar as private providers raise their own capital for financing
the  services  they  themselves  deliver,  including  those  to  publicly  insured  clients,  for  which  they  receive  partial  state
compensation. Across different sectors, private providers have mostly been enabled to deliver services through voucher

© European Foundation for the Improvement of Living and Working Conditions, 2015

9

Delivering public services: A greater role for the private sector?

systems,  the  transfer  of  choice  of  provider  to  the  client,  and  allowing  competition  for  securing  clients.  While  in
employment  and  healthcare  services,  financing  is  equal  for  private  and  public  providers,  in  other  sectors,  such  as
childcare, private providers are eligible for less funding for the same services. 

Case study 1: Employment and training services

Background and policy objectives
This case study focuses on the role of private providers in delivering training services to people who are unemployed or
workers who are about to be laid off. Since the 1990s, it has been legal for private actors to provide training services for
unemployed  people.  However,  up  to  the  introduction  of  a  new  financing  scheme  in  2012,  their  involvement  in  the
provision of training services was moderate. Then, the Lithuanian Labour Exchange (Lietuvos Darbo Birža, LDB) used
public procurement procedures to buy training services that were later provided to eligible persons identified by the LDB
as  being  most  in  need.  Under  the  new  funding  scheme,  those  eligible  for  training  receive  a  voucher  from  the  LDB
enabling them to pay for selected training services from a provider of choice. 

According to a policy expert interviewed for this study, although both public and private providers could participate in
both schemes, the voucher scheme proved more attractive to private entities. While private service suppliers associated
public procurement procedures with a high level of administrative burden, they found it was much easier to take part in
the new voucher scheme. In addition, before 2012, technical specifications for training providers required at least three
years’ experience in the provision of training services, which was difficult to satisfy for organisations coming from the
private sector. There were other disadvantages of the pre-2012 scheme:

n public  procurement  processes  were  protracted,  which  made  it  difficult  to  react  quickly  to  changes  in  the  labour

market;

n

the training services purchased had to be organised even when there was no demand for specific skills.

The share of people finding employment after training was low (no more than 70%), which implied an inefficient use of
public finances.

Figure 1 shows how the number of private entities providing training services has increased since the establishment of
the new funding scheme, while the number of public providers has stayed almost the same each year between 2010 and
2014.

10

© European Foundation for the Improvement of Living and Working Conditions, 2015

Delivering public services: A greater role for the private sector?

Figure 1: Number of public and private training service providers, 2010–2014

200

160

120

80

40

0

63

105

50

74

62

17

49

12

51

12

2010

2011

2012

2013

2014 (Jan–Oct)

Private providers

Public providers

Source: PPMI calculations based on statistical data provided by LDB

This increase in the number of private training providers has naturally translated into an increase in the proportion of
people receiving training from the private sector, as shown in Figure 2. Despite this change, more people (in absolute
numbers) still receive training in public sector institutions than they do in private institutions (see Figure 3). 

Figure 2: Share of job-seekers receiving training in public vs private organisations, 2010–2014

100%

80%

60%

40%

20%

0%

87.1%

89.6%

89.6%

57.2%

61.3%

42.8%

38.7%

12.9%

2010

10.4%

2011

10.4%

2012

2013

2014 (Jan–Oct)

Studied in private sector organisa(cid:2)ons

Studied in public sector organisa(cid:2)ons

Source: PPMI calculations based on statistical data provided by LDB

© European Foundation for the Improvement of Living and Working Conditions, 2015

11

Delivering public services: A greater role for the private sector?

Figure 3: Numbers receiving training, 2010–2014

12,000

10,000

8,000

6,000

4,000

2,000

0

11,220

9,772

1,448

2010

10,917

6,244

4,673

2,265

1,388
877

2013

2014 (Jan–Oct)

4,068

3,645

423

2011

5,020
4,498

522

2012

Studying in private sector organisa(cid:2)ons

Studying in public sector organisa(cid:2)ons

Overall numbers studying

Source: PPMI calculations based on the statistical data provided by LDB

As  explained  by  policy  experts,  greater  involvement  of  private  sector  companies  in  the  provision  of  training  was  a
side-effect of the establishment of the new funding scheme rather than the main rationale behind it. The main policy
objective was to ensure more efficient use of public money by providing training only to those who could immediately
use their acquired skills in the workplace; the new scheme limited voucher access to those who had secured a contract
with a future employer. The need for this policy came about during the economic crisis, which made it more difficult to
find work for those completing training provided by the labour exchange. According to policy experts, in 2008 around
72% of people who received training found a job, compared to only 32% in 2010. The new voucher system brought this
figure up to more than 90% in 2013.

Financing
The value of a training voucher cannot exceed €1,799, the equivalent of six monthly minimum wages. The LDB also
covers other related expenses such as providing a stipend and accommodation costs (Valstybės žinios, 2012). All funding
for vouchers comes from several projects financed by the European Social Fund (ESF) (LDB, 2014). As funding from
the ESF became limited during the changeover of programming periods, in 2014 the cost of most training vouchers had
to be covered by the national budget.3 This explains the decrease in the number of people who received training in 2014.
(According to interviewees, the cost of training is somewhat higher in the private sector due to a stronger focus on quality
– by employing high-level lecturers and teachers – and profit-making.)

Implementation and management
The legal basis governing the organisation of vocational training for people who are unemployed or laid off in Lithuania
is provided by the Law on Support for Employment (2006), the Law on Vocational Education and Training (1997), and
the  Description  of  the  Conditions  and  Procedures  related  to  the  Implementation  of Active  Labour  Market  Measures,
established by the decree of the Minister of Social Security and Labour on 13 August 2009. 

3

12

The ESF funding programmes run between 2007–2013 and 2014–2020.

© European Foundation for the Improvement of Living and Working Conditions, 2015

Delivering public services: A greater role for the private sector?

In  order  to  receive  a  training  voucher,  an  applicant  has  to  sign  an  agreement  (usually  tripartite  or,  rarely,  bipartite)
confirming  that  they  will  be  employed  after  receiving  training.4 Those  receiving  training  services  must  stay  in
employment for at least six months after training. If this condition is not met, the cost of the voucher and other training-
related expenses must be returned to the LDB by the party who has violated the agreement (either the employee or the
employer).

Training provided to people who are unemployed or due to be laid off can be formal or non-formal.5 The Ministry of
Education  and  Science  assesses  the  quality  of  formal  programmes  according  to  the  criteria  defined  in  the  relevant
documents,  such  as  the  Rules  for  the  licensing  of  formal  professional  training,  and  issues  a  licence  for  an  unlimited
duration to the accredited training provider. The ministry later monitors the quality of service provision and has the right
to  withdraw  the  licence  due  to  poor  performance  or  non-performance.  Non-formal  training  programmes  must  be
coordinated with regional social partners; however, beyond that they are not monitored.6 According to interviewees, it is
more common for private actors to provide non-formal training, for two reasons.

n There is a lower administrative burden for providers of non-formal training.

n Private  training  providers  are  often  the  future  employers  of  those  undergoing  training,  which  motivates  them  to
provide trainees with skills and competences that will be directly useful in their future work, as quickly as possible.

The analysis did not indicate any significant differences in the implementation and management procedures applied in
the public and private sectors.

Case study 2: ECEC

Background and objectives
Two factors gave rise to an overcapacity of publicly provided ECEC in Lithuania: a widespread infrastructure of public
kindergarten establishments left over from the times of the Soviet planned economy; and a decrease in the population
following 1990. This led to the eventual dismantling of some of the ECEC infrastructure. 

However, since the late 2000s the demand for ECEC services has been increasing, especially in bigger cities. Three key
demand-side factors acted as drivers for private providers to enter the market: an increasing birth rate, encouraged in part
by  a  generous  family  policy  involving  prolonged  paid  maternity  leave  with  100%  income  replacement  that  was
introduced in 2007; the lack of an ECEC infrastructure; and the solid growth in disposable incomes since the 1990s, and
especially since the 2000s, which meant that people could afford to choose more specialised childcare offered by private
providers. Moreover, municipality-owned kindergartens could not keep up with the rising demand for greater diversity
of early childhood education methods (Ministry of Education and Science, 2012) and curriculums as well as flexible
schedules (Monkevičienė et al, 2008). 

4

5

6

Tripartite  agreements  are  signed  by  the  individual,  the  labour  exchange  and  the  future  employer,  whereas  bipartite  agreements
involve only the first two parties. Bipartite agreement can be signed in two cases: (1) when, after receiving training, a person plans
to start their own business; (2) when a need for a labour force with specific skills is identified in the labour market analyses carried
out by the labour exchange.

Formal training programmes, providing users with formal qualifications, are accredited by the Ministry of Education and Science.
Non-formal training programmes aim to improve skills and competences without providing formal qualifications.

However, interviewees noted that at the time this case study was being conducted (late 2014), a new law on the rules regarding the
provision of non-formal training was being prepared by the Ministry of Education and Science.

© European Foundation for the Improvement of Living and Working Conditions, 2015

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Delivering public services: A greater role for the private sector?

However,  private  kindergartens  did  not  establish  rapidly  to  meet  the  increased  demand,  mainly  because  of  an
unfavourable  legal  basis  for  doing  so,  characterised  by  unreasonably  high  hygiene  standards,  strict  requirements  for
buildings and premises where kindergartens could operate, as well as no possibility of receiving state funding (Ruškus
et al, 2012).

The  biggest  impetus  for  the  entry  of  private  providers  into  this  sector  was  legislative  change,  lobbied  for  by  an
association of private childcare providers and parent organisations. At the end of 2010, the Ministry of Education and
Science and this association facilitated the conditions for the establishment of private kindergartens by creating a more
favourable legal framework. This involved simplifying hygiene standards; introducing pre-school education vouchers, a
public financing tool for both public and private service providers; and simplifying the requirements for kindergarten
buildings and facilities (Valstybės žinios, 2011a). 

Financing 
Since the beginning of 2011, private kindergartens have been partly funded by the government, although in a different
way from public kindergartens. Private kindergartens are funded by two sources: pre-school education vouchers (as of
2014  a  voucher  was  worth  €62  per  child  per  month)  and  parent  co-payments  that  vary  from  €144.80  to  €434.40  per
month, depending on location and services provided. The voucher officially covers four hours daily of kindergarten and
is half of the value of the voucher subsidy available to public providers. The difference between the cost of attendance
and the voucher is subsidised by parent co-payments. 

The cost of attending a public kindergarten is compensated by the same pre-school education voucher, but it is for a
larger amount and is intended to cover eight hours of care daily. The second half of this voucher, which is not available
to  private  providers,  is  funded  by  local  government  and,  according  to  interviewees,  is  also  supposed  to  cover
maintenance costs. Public kindergartens also charge parent co-payments, ranging from €58 to €87.

In the Lithuanian legal system, municipal governments are responsible for the organisation and provision of childcare
and education services. Some stakeholders understand this as a duty of municipalities to ensure 100% accessibility to
services  for  all,  and  they  look  to  the  municipalities  for  solutions  in  cases  where  demand  is  not  met. According  to  a
member of the association of private providers and parent organisations, parent associations in areas with an insufficient
supply of public kindergartens have put this duty to the test through case law.

The strategy for addressing the lack of supply and the higher cost of attendance at private kindergartens differs from one
municipality to another. In reaction to pressure in the courts, Kaunas district municipality announced in 2014 that from
November 2014 it would compensate parents by €72.40 for every month they had to buy services from private providers
due to a lack of public spaces. This municipality then announced support to low-income families (whose monthly income
does not exceed €753) through compensation of €175 from the summer of 2015, and provided €100 compensation for
higher-income families (Kauno diena, 2014). 

In 2015, Vilnius municipality established one new public kindergarten, with three more being planned. Although there
has been no official call for proposals, the municipality official interviewed said they are considering applications for
municipal concessions from private providers on a rolling basis, with applications being considered case by case. When
this case study was being conducted, two semi-private kindergartens (50–50 private–public funding) were operational in
the city of Vilnius, one of which had opened its doors in January 2015. In the case of semi-private kindergartens, the
municipality provides premises and owns 50% of the capital. Other conditions for the granting of concessions include
parent fees being kept below a ceiling set by the municipality. In 2014, the fee was €188.25 per month per child. 

14

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Delivering public services: A greater role for the private sector?

Implementation and management 
In  order  to  get  established  and  receive  public  funding  (in  the  form  of  pre-school  education  vouchers),  private
kindergartens have to be included on a registry of education institutions. This  requires meeting the following criteria,
which also apply to public kindergartens:

n meeting health and safety standards, and having a hygiene certificate, which is issued for an indefinite period of time;

n having an education curriculum that meets the requirements set by the Minister of Education and Science; 

n hiring teachers with the higher education and formal qualifications of a pre-school teacher or primary school teacher,

for teaching senior kindergarten groups.

Interviewees revealed that, in reality, private kindergartens face higher basic quality requirements than public ones. For
instance, some public kindergartens operate without a hygiene certificate. This is because they cannot afford to improve
their hygiene standards (partly because they serve more children than they have capacity for); the Seimas (Lithuanian
Parliament) Ombudsman has decided that, given the need for childcare, it is better to let them operate like this than to
close them down.

The municipality can supervise only public kindergartens and has no legal power to control private ones, which establish
their own quality control mechanisms. Private providers are subject to basic hygiene inspections and company audits.
Beyond that, quality control is implemented by parents who essentially vote with their feet by going to the best-quality
kindergartens;  as  with  every  business,  private  providers  have  to  attract  a  sufficient  number  of  customers  to  stay  in
business.  Moreover,  parents  tend  to  be  actively  involved  in  the  internal  governance  of  kindergartens,  and  their
involvement also works as a quality insurance instrument. 

Interviewees’ opinions on quality, unfortunately, cannot be supported by monitoring data, as neither parent organisations
nor public institutions conduct regular user satisfaction surveys or other forms of evaluation. 

There  is  little  in  the  way  of  institutionalised  communication  channels  that  would  enable  dialogue  between  service
provider regulators and stakeholders concerned with the lack of childcare services. Private providers and provider–parent
associations lobby for the equal financing of private and public providers, but at the time of the case study (early 2015),
this has not yet been fruitful. Across the country, municipalities still feel it is preferable and more cost-effective to control
childcare service provision and delivery. 

Case study 3: Primary and secondary healthcare 

Background and objectives
The foundation was laid for private providers’ entry into primary healthcare service provision with the establishment of
the Family Doctor Institution in 1995. The situation was strengthened in 2004 when general practitioners became family
doctors and family medicine became a certified service. In line with restructuring, Lithuania received support from the
World Bank and the EU Phare Programme. The latter helped finance the establishment of private primary healthcare
providers  on  the  eve  of  Lithuania’s  EU  accession  in  2004.7 Government  policy  at  that  time  was  leaning  towards
transferring all primary healthcare to the private sector, but this did not happen. 

7

The healthcare provider categories were GP, or GP and therapist, podiatrist, GP surgeon, gynaecologist and dentist. Although the
inclusion of specialised care in this concept was meant to be transitional, Lithuania has maintained this expanded definition of
family healthcare, unlike, for example, Estonia, according to a representative of the Ministry of Health. 

© European Foundation for the Improvement of Living and Working Conditions, 2015

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Delivering public services: A greater role for the private sector?

The number of private sector providers in Lithuania has been growing steadily, more than doubling from 837 private
providers  in  1998  to  1,882  private  providers  in  2013  (Gaidelytė  and  Tendziagolskytė,  2014  –  see  Table  3.6  Private
healthcare institutions and their staff, 2004–2013). However, private providers range from practices involving just one
family doctor to larger institutions, with the former greatly outnumbering the latter. The percentage of the population
registered  with  private  providers  in  2013  accounted  for  29.6%  of  Lithuanians  registered  with  healthcare  institutions
(Gaidelytė and Tendziagolskytė, 2014).

Private  providers  are  involved  in  both  the  funding  and  delivery  of  primary  healthcare  services.  Besides  the
aforementioned support from the Phare Programme for the establishment of private practices, no government funding
for infrastructure has been provided. This means that private providers operate as regular businesses and require private
capital for their setup and operational costs. In terms of delivery, most private providers of primary healthcare services
receive patients through the public healthcare insurance system, and may or may not charge additional fees, which vary
depending on the provider. The capacity of private providers in service delivery has changed over the last decade. Their
role in the delivery of publicly funded services was put before the Constitutional Court, which in May of 2013 ruled that
any  restriction  on  the  participation  of  private  providers  in  the  provision  of  public  health  services  would  be
unconstitutional.8 This paved the way for all private providers to get partial compensation from the state for services
provided to state-insured users (Lithuanian Constitutional Court, 2014). (See the section on financing below for further
detail.) In Lithuania, all registered unemployed and working citizens, including those engaged in part-time and voucher
work but excluding independent (freelance) workers – who have to pay out of their own pockets for mandatory health
insurance – have health insurance.

Financing 
There are two main sources of public funding available to private providers: the National Health Insurance Fund, which
compensates the base prices of services provided to insured individuals; and a fixed amount per every registered patient,
as well as a variable amount based on provision of recommended preventive services (such as free testing for cervical
cancer). Additional sources from the state budget include fixed and variable amounts for first diagnosis of cancer, among
other common diseases, although this funding mechanism was not particularly transparent according to the interviewed
private provider. 

Despite receiving compensation for base prices, most private providers, including an interviewee who chose to remain
anonymous, have to charge co-payments, even on subsidised services, as the set base prices do not cover the cost of
providing  the  service.9 The  issue  of  whether  they  are  allowed  to  charge  co-payments  was  addressed  in  the
aforementioned Constitutional Court ruling, which said it is up to the legislators to establish the exact conditions and
limitations for the funding of healthcare services for private providers. 

The private sector is also involved in the provision of specialised primary healthcare services, often operating out of
public hospitals and servicing both private and public patients. For example, there is a network of magnetic resonance
imaging (MRI) providers in Lithuania that receives a mix of private and public patients and thus funding. 

8

9

16

Leading up to the ruling and following it, there was considerable public debate, with the emergence of different interest groups,
specifically  the Association  of  Lithuania’s  Private  Health  Care  Companies  on  the  one  side,  lobbying  for  more  rights,  and  the
Ministry of Health on the other, aiming for more control and restrictions of private medicine. 

Public providers are not allowed to charge co-payments for compensated services; however, the practice of topping up, financially
or otherwise, is still commonplace.

© European Foundation for the Improvement of Living and Working Conditions, 2015

Delivering public services: A greater role for the private sector?

Besides covering a portion of the cost of providing services included under national insurance, the state provides no
additional subsidies or tax breaks to private healthcare providers. This means all infrastructure and maintenance costs
have to be cross-subsidised from services within those same providers that are 100% private. For example, most offer
dentistry services or invest in the development of innovative preventive healthcare services in order to be able to cover
their costs. 

According  to  a  service  provider  interviewee,  the  economic  crisis  complicated  the  cross-subsidisation  mechanism,  as
fewer people could afford paid services. For a time, private services focused on attracting more state-insured patients, as
public funding, although limited, remained stable during the downturn. However, the change in administration during
the crisis came with a political shift and the aforementioned Constitutional Court suit, causing many private providers
to refocus their business models on completely private services. Since independence, ministers of health in Lithuania
have  served  an  average  term  of  one  year  and  a  few  months,  so  there  has  been  little  continuity  in  terms  of  political
direction. 

The cost of private healthcare grew by over 57% between 2004 and 2009, when it reached approximately €290 million.
However, this increase includes pharmaceutical expenses, which are 100% private in Lithuania (Lithuanian Statistics
Department, 2014).

Public funding is available for both primary and secondary levels of healthcare (and for tertiary healthcare in a very few
cases). Some providers provide only primary care, which, since the 2013 Constitutional Court ruling, is partly subsidised
by  the  state  for  every  provider.  For  those  that  also  provide  secondary  care,  the  partial  subsidies  may  or  may  not  be
allocated based on criteria that are yet to become transparent – according to the private service provider interviewee,
their centre’s application for secondary-level funding was successful for the first time in 2014, after six unsuccessful
attempts. 

Implementation and management 
Implementation and management vary considerably among private service providers. The public subsidies for primary
and secondary services, which again only cover a small percentage of their costs (around 20% for the private provider
interviewee), come with some conditions. These include:

n

n

n

n

n

scheduled and unscheduled audits by the Territorial Health Insurance Fund, the National Health Insurance Fund and
the State Health Care Accreditation Agency;

annually renewable contracts with the National Health Insurance Fund;

a licence from the State Health Care Accreditation Agency;

annual check-ins from the Public Health Centre to verify that hygiene requirements are being met; 

additional check-ups based on the variety of services offered by the provider – for example, training programmes
regarding emergency care and dentistry services, which are overseen by a specific body. 

In  line  with  requirements  for  OECD  accession,  Lithuania  as  an  aspiring  member  has  mechanisms  in  place  for  open
governance – specifically, stakeholder involvement in the development, implementation and regulation of the service.
Patient associations, as well as the Ministry of Health, are represented in the management and supervisory boards of
regional and national insurance funds, including supervisory bodies for health-related issues such as the Commission for
Compensated Medicine. 

© European Foundation for the Improvement of Living and Working Conditions, 2015

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Delivering public services: A greater role for the private sector?

Quality  criteria  that  apply  to  all  healthcare  providers  have  been  set,  together  with  the  licensing  mechanism  both  for
specific  providers  and  medical  staff.  Besides  being  subject  to  the  abovementioned  audits,  both  private  and  public
providers  are  required  to  conduct  basic  client  satisfaction  surveys,  although  according  to  the  health  ministry  official
interviewed, they reveal little about the quality of services provided beyond friendliness of staff and the environment
where they operate. The municipal associations also play an important role in setting the criteria. 

Private  providers  conduct  their  own  client  satisfaction  surveys;  there  is  no  overarching  mechanism  for  all  providers.
There  is  an  association  of  private  healthcare  providers  that  collects  association-wide  data;  however,  the  cost  of
participation prevents some providers from taking part. 

Various  bodies  monitor  different  aspects  of  services.  Waiting  times  are  constantly  monitored.  In  fact,  in  order  to
institutionalise this process, in 2013 the Ministry of Health set up a new department for accessibility and suitability of
health  services.  Both  the  national  and  regional  health  insurance  fund  bodies  also  conduct  their  own  monitoring,  the
results of which are not widely publicised. The Hygiene Institute gathers statistical data about health services. According
to the health ministry interviewee, the institute has complained about non-compliance of some private providers that fail
to provide necessary data. 

Importantly, state funding is not the key concern for many private providers as they have a rigorous business model that
is sustainable even without public subsidies. However, if their licence with the National Health Insurance Fund were to
be revoked and they were no longer part of the healthcare system (in which case referrals to other healthcare actors and
prescriptions would no longer be valid), their business models would cease to be resilient. 

PPPs are very uncommon. There was one example of a major health centre in Vilnius called Karoliniškių Poliklinka that
was operated via a concession from Vilnius municipality by a private provider. The municipality, however, prematurely
ended the concession contract and paid the respective fines for doing so, as the authorities felt it was too great a risk to
trust private sector actors to manage the health of around 100,000 people who were registered with this provider.

Outcomes

Case study 1: Employment and training services

Access-related outcomes

In  this  case  study,  even  though  the  new  funding  scheme  uses  public  money  efficiently  by  ensuring  that  existing  job
training  opportunities  meet  market  demand,  it  created  a  barrier  for  eligible  (unemployed  or  laid-off)  individuals  to
receive training. Before 2012, every unemployed person could receive any training of their choice if the LDB indicated
that this would increase their employability. After the new scheme was introduced, in order to access training, users had
to ensure that they would be employed immediately after the training ended. However, as illustrated in the case study,
this did not affect the number of people receiving training. Greater involvement of private sector providers has increased
the number of training programmes available. 

Regarding access to services for people with disabilities, interviewees indicated that public sector institutions have a
better infrastructure due to recent investments from EU structural funds.

Quality-related outcomes

The present analysis did not identify any significant differences in terms of quality between services provided by public
and private sector bodies. In formal training, public sector institutions (such as vocational schools and labour market
training centres) have an advantage over private actors in terms of quality. This is mainly because they have a lot of

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experience and a long tradition in providing vocational training, as well as a high number of constantly available teachers
and a good teaching infrastructure (which was recently improved by investment from EU funds).

Interviewees suggested that private sector organisations have important benefits in terms of providing quality non-formal
training as compared to public sector organisations. Private training providers have a better understanding of the demand
for skills in the labour market. This is especially so when the training provider is also a future employer. In such cases,
the training provider is very concerned with providing the highest possible quality training as well as skills that will be
immediately useful in the workplace.

Effectiveness-related outcomes

The new funding scheme, alongside the related increased involvement of private sector providers, had a positive impact
on the effectiveness and efficiency of training provision. The main indicator supporting this conclusion is the number of
people employed after receiving training, which increased from around 70% in 2008 to around 90% in 2013. The new
scheme seems to be more effective, as most of the training recipients can immediately apply their skills in the workplace.
This is in line with the main objective of training for unemployed people – to help people return to the labour market.

Case study 2: ECEC 

Access-related outcomes

Access  is  a  key  issue  in  childcare  provision  in  cities,  where  public  provider  capacity  is  insufficient,  while  there  is
overcapacity in some rural regions. For reasons discussed above, the number of private providers increased from 6 in
2008 to 75 in 2014. This still constitutes a small market share, and it is not clear how many children would be enrolled
in private kindergartens if there was a sufficient supply of public alternatives, due to the higher cost of private childcare.
In Vilnius, for example, the city with the biggest shortages, there are 50 private and 140 public kindergartens (Delfi,
2015). The development of the private childcare sector increased access for parents. However, accessibility is tied to
ability to pay for services; families of lower-income earners need other care options. Waiting lists at public kindergartens
do not take into account financial and social need. 

Regarding other aspects of accessibility, private providers, unlike public providers, are not obliged to serve any child
who applies. However, they are often better equipped to integrate children with special needs due to a better child-to-
teacher ratio. 

Quality-related outcomes

No country-wide or municipality-wide studies on quality exist. However, it became clear from the interviews conducted
that even though public and private kindergartens receive similar levels of funding (all sources combined), the quality
of services tends to differ in the following ways.

n There are fewer children per group in private kindergartens.

n There are two teachers per group in private kindergartens versus one per larger group in public ones. 

n Extracurricular activities are included in the monthly fee for private kindergartens.

n Private kindergartens offer a wider variety of teaching methods and curricula, a more flexible work schedule, and a

different educational content.

There  is  no  systematic  evidence  on  the  effectiveness  of  private  kindergartens  compared  to  public  ones. Among  the
representatives  interviewed,  two  camps  emerged:  the  municipality,  on  the  one  hand,  and  parent  organisations  and
providers,  on  the  other.  While  the  municipality  official  in  charge  of  ECEC  held  that  private  kindergartens  are  more

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expensive  than  public  ones,  a  representative  of  a  parent  association  and  head  of  a  network  of  private  kindergartens
believed that after adding all sources available to public providers, the funding is similar while quality seems to be better,
in general, among private providers. 

Effectiveness-related outcomes

Some insights on cost-efficiency can be drawn from information about the quality and management of services in public
and private kindergartens. As public kindergartens have a significantly higher number of children than private ones, they
have  a  better  value-for-money  ratio.  However,  there  is  a  trade-off  between  quality  and  costs  because  the  student-to-
teacher ratio is much worse in public than in private kindergartens. This is especially the case in a kindergarten with
children with disabilities or special needs, who require much more attention from childcare providers. 

Case study 3: Primary and secondary healthcare

Access-related outcomes

The  national  policy  of  free  healthcare  makes  primary  healthcare  services  particularly  accessible  via  both  public  and
private providers. Where there is a lack of supply, choice or quality of services, the private sector fills this gap with
services ranging from small family doctor practices to more extensive healthcare centres.

The amount of the co-payment required from clients depends on various factors, such as the specific provider, their cost
and revenue structure, their organisational form (NGO or private company) and the extent of state subsidies available to
them. Some providers charge annual fees of around €450, for example, which they use to pay for various patient needs,
from tests to different types of treatment, without any additional costs. Most private providers, however, charge small
fees in addition to the base fee for specific services they receive from the Territorial Health Insurance Fund, which makes
their services off limits to patients with the lowest income. However, while public providers do not charge co-payments,
access is restricted by longer waiting lists, which at some clinics may reach two weeks to see a family doctor and longer
waits for secondary-level services. 

Access to information about payments is limited and complicated by the lack of coherence on state policy as regards co-
payments. This legally prevents even the private providers themselves from making public on their websites the exact
co-payment costs. 

Quality-related outcomes

It is difficult to generalise on quality across all private providers, and no studies compare quality of services between the
two different types of providers. Nonetheless, stakeholder interviewees unanimously agreed that private providers outdo
public ones in terms of quality. Some benefits cited include the absence of waiting lists, a focus on client satisfaction,
innovation (including state-of-the-art equipment and materials), know-how, and new products and services. All of these
are related to private providers having to function as regular businesses, with the number of clients and the services they
are willing to buy determining whether or not they can cover their costs. Moreover, while public providers, in purchasing
equipment  and  materials,  have  to  use  fixed  budgets  as  determining  criteria,  private  providers  have  the  room  for
manoeuvre to pay more for better quality, although they presumably pass on the associated costs to their service users. 

Effectiveness-related outcomes 

National policy does not have a goal or specific objectives regarding the role of private providers in the delivery of public
healthcare services. An accurate measure of effectiveness would require access to relevant healthcare data. According to
the  representative  from  the  Ministry  of  Health,  there  are  various  methodologies  for  assessing  the  cost-efficiency  of
services; however, it is not clear to what extent they are applied in the public sector. For example, in tertiary care, a
profitable hospital should have no less than 200 beds, yet this is the case for few hospitals in Lithuania, and most work

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Delivering public services: A greater role for the private sector?

at a loss. In the private sector, however, cost-efficiency is essentially built into the business model: ineffective centres
will simply go bankrupt, as indeed some have. 

Private healthcare centres typically hire doctors on part-time contracts, thus ensuring that they have to pay only for their
doctors’ active working hours, something that public providers do not do. Meanwhile, doctors work in various private
and public providers simultaneously, in some extreme situations holding as many as six jobs, as witnessed by the private
provider interviewed for this case study. In 2013, 33.6% of all doctors in the healthcare system were employed by a
private provider, and only 9.4% of all physicians worked for private providers full time (Gaidelytė and Tendziagolskytė,
2014).

Availability of services also relates to effectiveness. Opening hours tend to be longer among private providers, and some
offer services over weekends. For example, the MRI clinics that private companies operate under service agreements
within public hospitals remain open on Saturdays and Sundays when all other planned services in these institutions are
closed. In this way, private providers maximise their use of equipment, thus ensuring profitability while also increasing
access for patients, including public patients. 

Conclusions 

Private sector participation in the delivery of public services in Lithuania grew slowly but steadily in the decade leading
up  to  2015.  The  most  marked  changes  have  taken  place  since  2010,  with  legislative  developments  favouring  open
competition between public and private providers in all three sectors analysed in this country study. That said, the private
sector is not seen as a solution to the inadequate capacity of existing public provision, as in the case of ECEC, and there
is little incentive for private providers to enter the market for these services.

According  to  the  government  representative  interviewed,  there  is  no  coherent  national  policy  on  private  sector
involvement in the delivery of public social services. This means regulation takes place at sector level (involving specific
ministries),  and  there  are  considerable  fluctuations  in  the  nature  of  this  regulation,  relating  to  the  different  political
ideologies of different governments. While in some sectors there are attempts to prevent the entry of private providers
(for example, healthcare), in others private actors are encouraged to enter the market in order to increase the variety of
services (for example, employment services). This lack of consistency in the policy as regards private sector involvement
is a key concern for existing private providers in the country, especially in healthcare (see the earlier mention of the
Constitutional  Court  case  regarding  the  health  ministry’s  attempt  to  exclude  private  companies  from  providing  tax-
financed services).

Legally,  municipality  governments  are  in  charge  of  ensuring  the  provision  of  SSGIs  to  residents  by  assessing  needs,
planning  and  organising,  and  controlling  service  quality.  The  level  of  decentralisation  varies,  however,  and  while
municipalities  are  in  charge  of  ECEC  provision  across  the  board,  the  management  of  healthcare  involves  a  mix  of
municipal, private and state-run centres and hospitals.

Clients  have  mixed  preferences  when  it  comes  to  private  and  public  providers  because  the  former  charge  larger  co-
payments (in healthcare and ECEC). Even so, private providers have been gaining an increasing market share as they
offer different, more innovative and more client-focused services, or are able to accommodate demand in the face of
public provider shortages (ECEC) or long waiting lists (healthcare). 

In  2015,  dual  standards  are  applied  to  public  and  private  providers  in  Lithuania,  especially  in  ECEC,  where  private
providers are eligible for less state money than public ones for the same service, and higher operational standards are
expected of private providers than of public providers. 

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Delivering public services: A greater role for the private sector?

The economic crisis did not have a uniform effect on different public services. Regarding employment services, the lack
of effectiveness of public provider training for unemployed people during the crisis led to competition being opened to
private providers. In healthcare, private providers had to increasingly rely on privately insured clients as demand for paid
services plummeted amid the downturn. 

Sources

Delfi  (2015),  ‘Vilniaus  savivaldybės  išnuomotose  patalpose  Pilaitėje  –  naujas  privatus  vaikų  darželis’,  6  January,
available at 
http://www.15min.lt/naujiena/aktualu/vilniaus-zinios/vilniaus-savivaldybes-isnuomotose-patalpose-pilaiteje-
naujas-privatus-vaiku-darzelis-793-476875#ixzz3Qh8Cezbl.

Gaidelytė, R. and Tendziagolskytė, D. (2014), ‘Lietuvos gyventojų sveikata ir sveikatos priežiūros įstaigų veikla 2013’,
Health Information Centre of the Hygiene Institute, Vilnius.

Kauno diena (2014), ‘Skurdesniems kauniečiams – didesnė kompensacija už privatų darželį’, 27 November, available at
http://kauno.diena.lt/naujienos/kaunas/miesto-pulsas/skurdesniems-kaunieciams-didesne-kompensacija-uz-
privatu-darzeli-661924#.VLdn6UeUd41.

LDB  (Lithuanian  Labour  Exchange)  (2014),  ‘Įgyvendinami  Europos  sąjungos  struktūrinių  fondų  finansuojami
projektai’, available at http://www.ldb.lt/Informacija/ESParama/Puslapiai/esf_projektai.aspx.

Lithuanian  Constitutional  Court  ruling  No.  47/2009-131/2010  [in  Lithuanian],  16  May  2014,  available  at
http://www.lrkt.lt/dokumentai/2013/n130516.htm.

Lithuanian Statistics Department (2014), ‘Pagrindiniai šalies rodikliai’, available at http://osp.stat.gov.lt/. 

Ministry  of  Education  and  Science  (2012),  ‘Ikimokyklinio  ugdymo  kokybė’,  in Švietimo  problemos  analizė, Vol.  77,
No. 13.

Monkevičienė,  O.,  Glebuvienė,  V.  S.,  Jonilienė,  M.,  Montvilaitė,  S.,  Stankevičienė,  K.,  Mauragienė,  V.  et  al  (2008),
Ikimokyklinio ugdymo įvairovė: Esama situacija ir visuomenės lūkesčiai, Final research report, Lithuanian University of
Educational Sciences, Vilnius.

Ruškus,  J.,  Žvirdauskas,  D.,  Zybartas,  S.,  Eskytė,  I.,  Motiečienė,  R.  and  Dorelaitienė,  A.  (2012),  Ikimokyklinis,
priešmokyklinis ugdymas Lietuvoje. Būklės ir galimybių tyrimas, Vytautas Magnus University, Kaunas, Lithuania. 

Valstybės žinios (2006), ‘Catalogue of social services’ [in Lithuanian], available at
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=274453&p_query=&p_tr2=. 

Valstybės žinios (2007), Law on Vocational Education and Training (1997) [in Lithuanian], available at
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=474737. 

Valstybės žinios (2009), Law on Support for Employment [in Lithuanian], available at
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=478633. 

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Delivering public services: A greater role for the private sector?

Valstybės  žinios  (2011a),  Approval  of  the  Programme  of  Pre-school  Education  Development  for  2011–2013  [in
Lithuanian], available at http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=393941&p_query=&p_tr2=2.

Valstybės žinios (2011b), Rules on the Licencing of Formal Professional Training [in Lithuanian], available at
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=403871.

Valstybės žinios (2012), Description of the Conditions and Procedures Related to the Implementation of Active Labour
Market Measures [in Lithuanian], available at
http://www3.lrs.lt/pls/inter3/dokpaieska.showdoc_l?p_id=417286&p_query=&p_tr2=2.

Žalimiene,  L.  and  Lazutka,  R.  (2009),  ‘Socialinės  globos  paslaugos  Lietuvoje:  Nuo  hierarchinio  prie  misrios  globos
ekonomikos modelio’, Pinigø Studijos, No. 2.  

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Country study: Spain

3

Overview

From the mid-1980s onwards, the Spanish government, at all levels and in all sectors, began to rely increasingly on the
involvement of the private sector for the delivery of public goods and services, in various ways and forms. These ranged
from the privatisation of public services to innovative PPP mechanisms. They also included more traditional measures
such as contracting with private companies or the third sector, which sometimes involved the participation of users in
co-payment schemes.

In the late 1990s, Spain’s use of PPPs expanded. This happened at the three levels of government: the state, autonomous
communities and local level (which may be further distinguished into provincial and municipal levels). More recently,
the Spanish government’s interest in PPPs appears to have decreased due to the economic crisis. Nonetheless, in both
volume and diversification, Spain is one of the EU Member States most committed to this form of public–private sector
cooperation (Allard and Trabant, 2008a). From 1998 to 2006, regional administrations accounted for the highest number
of  different  kinds  of  PPPs  (where  private  sector  involvement  ranged  across  functions,  from  design  and  financing  to
operation and management); they comprised 69% of completed projects (Allard and Trabant, 2008a; see, for example,
IMF, 2004, for the different modalities of PPPs).

Unlike the UK, where most collaboration occurs in the fields of education and health, in Spain it has mostly occurred in
the infrastructure sector (especially ports and roads). This sector accounts for more than half of all PPPs awarded and
pending (Allard and Trabant, 2008a). Since 2000, Spain has also witnessed a diffusion of public–private collaboration
across  various  policy  sectors;  this  is  especially  so  in  healthcare  but  has  also  been  seen  in  sectors  such  as  renewable
energy, defence and prisons, and more recently (2010–2012) in employment services. 

Since 1986, Spain has enjoyed a universal national health service (Sistema Nacional de Salud, SNS) funded through
general taxation, through which the mainly public provision of services is managed by regional governments. Reforms
that  altered  the  principle  of  universality  for  healthcare  were  enacted  only  in  2011  (Del  Pino,  2013).  However,
experimentation with new organisational forms began with a 1997 Act that enabled new forms of management of the
SNS, which was supported in parliament by the two main Spanish political parties, among others (Abellán, 2013, p. 282).
While direct public provision was preserved, some new public management practices were incorporated with the aim of
increasing the flexibility of management. These increasingly relied on a variety of organisational types with their own
distinct legal personality. In terms of indirect management of services, a series of varied formulas have been utilised;
examples  include  health  personnel  hired  as  independent  professionals  and  the  use  of  non-profit  organisations  or
commercial companies (Martín, 2003; Abellán, 2013; Sánchez Bayle, 2013). PPPs have become increasingly important,
especially in some regions, such as the Community of Valencia, where 20% of the population receives healthcare through
them (Mendoza, 2013, p. 86), as will be seen in the case study of the Ribera Hospital. One study identified 25 health
PPPs in Spain between 1995 and 2012 (Acerete et al, 2013).

In addition to PPPs, traditional collaboration with the private sector occurs in some fields, such as compulsory education
and social services. This is because the first democratic governments after the transition to democracy in the 1970s relied
on  the  existing  private  networks  to  continue  providing  these  services.  Such  collaboration  involves  contracting  both
private  companies  and  the  third  sector;  examples  of  the  latter  include  cooperatives,  mutual  societies,  non-profit
associations, foundations and social enterprises. 

In the EU, Spain has the second highest level (after Belgium) of private provision of services. Around 30% of childhood
education (for those aged 3–16 years) is funded by the government but provided by the private sector (OECD, 2011a,
p. 306). The participation of the third sector and the private sector in the provision of social services and long-term care

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has  consolidated  since  the  1990s,  with  public  provision  of  these  services  largely  disappearing.  The  for-profit  sector
gradually  gained  ground  over  the  third  sector  in  these  fields,  especially  regarding  elder  care:  in  1995,  private
employment in this sector reached 50%, while by 2010 this figure was close to 80%. Similarly, by the mid-2000s, only
30% of social service centres were publicly owned, while 70% were privately owned, with the non-profit sector playing
a bigger role here (Fantova, 2007).10

Some factors have been driving this greater private sector role in the delivery of public services in Spain. They include:

n

n

n

n

the need to modernise the industrial and service sectors after years of dictatorship;

the dissemination of new public management ideas;

rising government debt;

the need for additional investment to develop infrastructure and services that would otherwise have been postponed
for many years; 

n

the pressure of transnational corporations to access investment opportunities in new areas;

n EU  membership,  as  the  application  of  Community  legislation  has  influenced  the  traditional  operation  of  service

provision (such as contracting out); 

n

the  extensive  decentralisation  of  government  power,  by  which  17  regions  (autonomous  communities)  were
recognised  and  granted  power  (Bel  and  Costas,  2001;  Cabeza  and  Gómez,  2007; Allard  and  Trabant,  2008a  and
2008b; Acerete et al, 2011). 

It is still too early to assess whether or not the economic crisis has had an impact on the growth of PPPs in Spain. As
will be seen later in this report, certain factors may be slowing down this trend: a decrease in economic activity, some
significant  cases of corruption linked to public–private contracting, and strong public opinion regarding the privatisation
processes in the field of social policy.

Eurostat acknowledges that, under certain conditions, some PPP transactions are not taken into account for the purposes
of debt and deficit figures, which makes them attractive to governments struggling with budget consolidation (Acerete
et al, 2011, 2013; Arrufat, 2011; Araujo, 2013).

Analysis of the private sector’s involvement in the provision of SSGIs shows strengths and weaknesses (see the review
by Cabeza and Gómez, 2007). At local level, initial savings in areas such as municipal solid waste disposal and the water
distribution  service  were  not  sustained  over  time.  However,  the  threat  of  privatisation  has  indirectly  contributed  to
modernisation in the municipal public sector across a wide range of services including SSGIs, as well as the promotion
of inter-municipal cooperation and the creation of public or public–private corporations, creating gains in efficiencies
and costs (Bel, 2009). Despite Spain having one of the highest rates of PPP use, a 2008 report warned of substantial risks
given the speed and intensity with which the state apparatus was relying on them. Considering the situation in Spain
against a series of criteria of the UN Economic Commission for Europe, some authors suggested that PPP projects should
have been promoted and managed effectively, concluding that ‘it is clear that in Spain the government has not assumed
a minimal role’ (Allard and Trabant, 2008a, p. 84).

10

26

In this case, ownership is the same as delivery.

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Some  politicians  assume  that  criticisms  by  the  Spanish  public  of  the  welfare  state  reveals  a  desire  to  privatise  the
provision of welfare programmes. However, according to a 2008 survey by the Spanish Sociological Research Centre,
a majority of citizens preferred public funding and public provision of education, health and social services care, at 87%,
86% and 70% respectively (Calzada and Del Pino, 2008). All the retrenchment measures adopted by the government in
the context of the economic crisis have faced opposition from the public. Alongside the so-called ‘white tide’ movement
defending public and universal healthcare, this has had an important impact especially in the region of Madrid, where
the regional government has made further attempts to privatise services (Fernández Ruiz et al, 2013).

Table 3 summarises the main trends regarding the private sector’s role in the case studies chosen for Spain.

Table 3: Role of the private sector in the case studies of Spain

Sector

Home-help services 

Brief description

The Dependency Act of 2006 consolidated home-help services and made them universal. Social economy
organisations and small companies that were traditionally active in this sector became displaced by
competition from large companies. These changes have affected both workers and users in different ways
regarding the coverage, quality and effectiveness of services.

Long-term care and social services Due to the economic crisis, long-term care services underwent several adjustments between 2010 and 2014.
For example, terms of access to benefits and services were tightened, the scope of services and the amount
of benefits were reduced, and services and benefits that were previously compatible were made
incompatible. 

Tertiary healthcare

Ribera Hospital, which opened in 1999 in the town of Alzira in Valencia, was the first Spanish hospital to
involve a PPP model, known as the Alzira administrative concession model. The regional government
partnered in a joint venture with a consortium comprising a healthcare services company, three regional
savings banks and two construction companies, supervised by a healthcare commissioner designated by the
regional government. The consortium constructed the hospital and was contracted to manage it, including its
clinical services, for 10 years. The Alzira model came under intense political and professional opposition,
yet the Valencia government has become hampered by it, finding it difficult to openly acknowledge the
problems that have arisen. 

Source: Prepared by authors

Case study 1: Home-help services

Background and objectives
Home-help services are one of the most important public support schemes for dependent or disabled people. Home help
involves the provision of personal help or specific housekeeping services, or both, in the home for those whose personal
independence is restricted or who are undergoing a personal or family crisis.

Acute demographic ageing has made the population of Spain the oldest in the world (UNFPA, 2014), and this has been
one important driver in the growth of home-help services. Although these services have been provided by the Spanish
government  since  1979,  Act  39/2006  on  the  Promotion  of  Personal  Autonomy  and  Care  for  Dependent  Persons
(otherwise known as the Dependency Act) consolidated them and made them universal. 

Despite a difficult economic environment, governments have been forced to increase home-help services and, as will be
shown, to modify the involvement of the private sector. A commitment of new public funding from the three levels of
government,  alongside  the  increasing  number  of  older  citizens,  has  been  seen  by  some  as  a  promising  business
opportunity.  Moreover,  the  loss  of  business  in  areas  such  as  construction,  industrial  cleaning  and  security  as  a
consequence  of  the  crisis  has  attracted  well-established  and  large  companies  to  this  sector  that  previously  had  not
considered  becoming  involved  in  home-help  services  (see,  for  example,  several  reports  by  consulting  firms  such  as
Deloitte, 2008). 

This case study focuses on the region of Madrid. 

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Financing, implementation and management
Social economy organisations and small companies that were traditionally active in this sector have been displaced by
competition from large companies. The former are particularly critical of European legislation that has been applied to
date  (Directive  2004/18/EC),  as  well  as  Spanish  procurement  rules  (the  Act  on  Contracts  in  the  Public  Sector,  14
November 2011). They also complain of the way subnational authorities are managing the bidding processes in home-
help services, which involves four requirements that are very complex and difficult for small organisations to meet.

Firstly, the Madrid City Council has increased both the length of contracts of home-help services (to 2.5 years) and their
volume; with the growth in the number of users, the council decided to group its bid packages 11 to a greater extent than
before, when they used to be offered in a more fragmented way. The need to provide a guarantee or bond of around 5%
of the bid has driven some companies out of the market.

Secondly, new rules have increased the weight of price as a selection criterion in the bidding processes, to the detriment
of  technical  specifications  and  quality  criteria  (which  are  established  and  controlled  by  the  city  council).  Since  most
companies claim to meet the technical specifications, the price is the final criterion that decides the results of bidding.
In Madrid since 2012, the price counts for at least 65% of the bidding criteria. Obviously, large companies can be more
competitive here, thanks to a lower cost structure. Smaller companies complain that sometimes large companies compete
by providing recklessly low prices, which succeed in expelling the other companies from the market permanently. 

Thirdly,  and  largely  as  a  reaction  to  some  cases  of  corruption,  anonymity  is  required  from  companies  involved  in
bidding, so as to avoid pressure on those who decide the outcome. In practice, this has hurt companies that traditionally
occupied the sector because anonymity prevents them from showcasing their extensive experience in the sector, as this
is not one of the selection criteria.

Fourthly, during the economic crisis, the length of time it took the council to process invoices grew well beyond the
limits established in relevant regulations. While this situation has improved in recent years, reaching a processing time
of only 30 days in 2014, this situation proved unaffordable for some companies. 

New  EU  legislation  on  public  procurement  may  partially  improve  this  situation,  in  particular  Directive  2014/23/EU
concerning the award of concession contracts and Directive 2014/24/EU on public procurement. Both Directives have
to be transposed into the Spanish system before 18 April 2016; individual aspects of them may be delayed by as much
as two more years.

Case study 2: Long-term care and social services 

Background and objectives
The long-term care policy that was embodied in the 2006 Dependency Act launched the Long-term Care System (LTCS).
Access  to  LTCS  means  a  citizen  entitlement  or  right  to  a  basic  level  of  protection  and  occurs  at  the  request  of  the
beneficiary. A range of cash benefits and services are involved, with home-help services and telecare being especially
important. Telecare is a technological device that enables hands-free communication from home, via a remote control,
with a contact centre that operates 24 hours a day, 365 days a year. The home-help service provides a specialised home-
care  assistant  who  is  responsible  for  personal  and  domestic  care.  These  services  are  provided  through  social
organisations, as well as small and big companies.

11

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Paquetes de licitación are a group of home-help services to be provided in a cluster of districts.

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Delivering public services: A greater role for the private sector?

Nationally, both services represent a modest share (about 28.6%) of all total benefits and services associated with LTCS
(CES, 2014). However, the public values these services because they allow individuals to be cared for and to live in their
home environment with a certain degree of autonomy. LTCS services underwent several adjustments between 2010 and
2014, mostly due to the economic crisis (Marbán and Rodríguez Cabrero, 2013; Moreno Fuentes, 2015). Among other
changes, terms of access to benefits and services were tightened; the scope of services and the amount of benefits were
reduced (the latter by 15%); services and benefits that were previously compatible were made incompatible; and the
financial contribution required from users was increased. 

This case study analyses the impact of these changes on users of home care and telecare in the jurisdiction of Madrid
City Council.

Financing
Madrid  City  Council  justified  an  increase  in  co-payments  for  the  services  as  a  necessary  measure  given  the  difficult
economic situation. The remaining cost is paid by the central government, which guarantees the transfer of certain funds
to regional governments to ensure a minimum level of protection. Using the criteria established to calculate co-payment
contributions in a national executive decree of 2012, one expert calculated that the average amount of revenue raised
through the implementation of co-payment contributions may represent an increase from 10% to 50% in the real cost of
services (Montserrat Codorniú and Montejo, 2013). Another study found that co-payment by users of the long-term care
system represented 10% of contributions in 2009, rising to 19% in 2013 (Barriga et al, 2014 – see Figure 4). For some
specific services provided by this system, the co-payment rose to 34%.

Figure 4: Change in the distribution of contributions to payment of long-term care services, Spain, 2009–2013

€7,000

€6,000

€5,000

s
n
o

i
l
l
i

M

€4,000

€3,000

€2,000

€1,000

€0

2009

2010

2011

2012

2013

Total cost of the system

Central government

Regional government

Service user

Source: Authors’ analysis, based on data by Barriga et al (2014)

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Delivering public services: A greater role for the private sector?

Recent years have seen three changes in rates and co-payment for telecare. Until March 2013, only pensioners under 80
years and with the biggest pensions (about €2,500 monthly) paid for the service provided by the city council. However,
as  of  March  2013,  the  co-payment  was  also  applied  to  new  users  of  telecare,  due  to  the  adaptation  of  the  national
executive  decree  of  2012,  which  implemented  the  amendment  on  co-payment  in  the  Dependency Act,  but  was  not
applied by other regional governments. All these measures apply to the new users of the system. From January 2014,
those who were already using the service and who received a pension higher than €460.29 have also been required to
make  co-payments.  This  measure  affected  nearly  66%  of  pensioners  using  the  service.  The  co-payment  for  telecare
ranges from €0 to €12 per month, depending on earnings. Since October 2014, exemption from co-payment has been
extended to those with a monthly income under €614.29. According to the city authorities, this was enabled by revenues
gathered  from  the  previous  increase  in  co-payment  rates.  According  to  the  opposition,  this  is  an  example  of
electioneering, given the proximity of municipal elections.

In 2013, there were around 50,000 beneficiaries of the home-help service provided by the city council. In that year, the
Dependency Act led to about 4,000 new users, who up to then had been served by the regional government, joining the
city council beneficiaries. For some of these users, the transition from one system to another meant a substantial increase
in  co-payment  obligations,  as  the  Madrid  regional  government  charged  €1.31  per  hour  while  the  council  charged
between €0.57 and €7.31, depending on the users’ income. For users who require many hours of home help (which can
be up to 70 hours per month, depending on need), the cost can be significant.

Implementation and management
Each  beneficiary  of  long-term  care  is  assessed  by  the  regional  government  according  to  a  scale,  which  attributes  a
‘dependence rating’ to each recipient. Each rating gives entitlement to a series of services and benefits. 

Case study 3: Tertiary healthcare

Background and objectives
In 1997, the government of the Valencia region took advantage of a national Act that enabled new forms of management
of the national health service to introduce a new PPP model, which became known the Alzira model, to build and operate
a hospital. The Alzira model takes its name from the town in which the Ribera Hospital opened in 1999, the first Spanish
hospital to involve an administrative concession. Under this model, a partnership is established between the regional
government and a private body, which is responsible for constructing the hospital and managing it, including the clinical
services, for a period of time, after which the building reverts to government ownership. This is different from other PPP
models, such as private finance initiatives (PFIs), where the concession holder builds the infrastructure in exchange for
the management of non-medical services (such as cleaning, laundry or parking).

The  government  opted  for  an  administrative  concession  due  to  the  economic  situation  and,  to  some  extent,  for
ideological reasons. Proponents of this type of model assert its ability to modernise management and produce innovation.
However, this model has faced intense political, professional and public opposition. The Valencia government cannot rid
itself of the arrangement, finding it difficult to openly acknowledge the problems that have arisen. 

Management and implementation
The consortium that won the contract to build and manage the hospital comprises a healthcare services company (51%),
three regional saving banks and two construction companies. A commissioner of healthcare designated by the regional
government controls the concession holders.

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Delivering public services: A greater role for the private sector?

Financing 
The project was to be funded by a yearly capitation fee of €204 per resident, which has been rising each year according
to  the  consumer  price  index.  In  the  initial  contract,  the  government  paid  €47  million  per  year  on  behalf  of  230,000
residents. The hospital opened in January 1999, but the contract terminated in 2003, several years before the scheduled
termination date. The regional government paid €69.3 million for this joint venture, of which €43.3 million was for the
purchase of infrastructure assets and €26 million for compensation of lost profit. Immediately, another bidding process
was convened. As with the first bidding process, there was only the one bidder, the same consortium that had won the
first contract.

Under the terms of the new contract, the consortium was to pay the regional government a premium of €72 million for
the new contract, which included taking over the infrastructure assets just bought back by the government (Acerete et
al, 2011). The consortium could afford this thanks to the payment of €69 million that the government had just made to
its predecessor, which had the same parent entities. This huge sum could be seen as a way of discouraging other bidders,
therefore guaranteeing that the previous consortium would win the new contract. The new contract was also to cover
primary as well as specialist healthcare and involved an increase in the capitation fee, from €234 to €379. 

Outcomes

Case study 1: Home-help services
The  expansion  of  large  multinational  companies  in  the  context  of  the  situation  described  above  creates  enormous
pressure in the social economy in several respects. It forces organisations to make internal structural adjustments. The
response  of  the  third  sector  has  been  to  grow  in  size  and  catchment  area,  particularly  through  social  initiative
cooperatives. In around 47% of cases, this involves business collaboration through the establishment of shared services,
joint ventures, strategic alliances, commercial and central purchasing networks, collaborations in outsourcing services,
and the development of social markets promoted by social enterprises that do not require the exchange of money for their
operation (Coceta, 2010; Morales, 2011; Rodríguez Cabrero, 2013). Yet, in Spain, the weight of employment in the social
economy  (including  cooperatives,  mutual  societies,  non-profit  associations,  foundations  and  social  enterprises)  is  6.7
compared to 7.4 in the EU (Rodríguez Cabrero and Marbán, 2013; Monzón and Chaves, 2012).

Access-related outcomes

The number of users of the home help service has increased thanks to a greater commitment of public funding, which
since 2007 has been attracting bigger companies. In 1999, the service coverage for those over 65 years was 1.7%; in
2008, this had reached 4.7%. No restrictions in access, arising from the change in the profile of companies providing the
service, were apparent.

Quality-related outcomes

In  this  sector,  cooperatives  are  particularly  likely  to  argue  that  involvement  of  private  providers  has  had  a  negative
impact on both workers and service users. In their view, workers in large firms have the worst salaries and generally
poorer working conditions as companies are not forced to reinvest part of their profits in the training of workers. It is
also their view that service users received better care when they were served by bodies such as cooperatives, foundations,
non-profit associations and social economy companies. However, service users are generally satisfied with services: a
survey carried out by Madrid City Council (2012) found that, on a scale of 1 to 10, the average satisfaction level was
8.29. At the same time, service users who were interviewed shared some concerns about the working conditions of the
employees who care for them, and 30% of service users complained of excessive staff turnover.

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Delivering public services: A greater role for the private sector?

Effectiveness-related outcomes

Madrid City Council is considering imposing a financial penalty for poor performance of home-help services. Home help
is a sensitive service, with limited publicly available data. The extent of the proposed penalty may range from mild to
severe  or  very  severe.  It  may  be  imposed  for  various  reasons,  such  as  inadequate  care  for  service  users  or  loss  of
confidential documents.

Spanish  third-sector  organisations  demand  improvements  to  the  mechanisms  that  facilitate  collaboration  with  public
administrations.  Proposed  measures  include:  simplifying  legal  and  administrative  requirements,  for  example  in
processing and justifying subsidies; developing a specific coordination system for the sector; applying social clauses in
public bidding and scoring systems to ensure the quality and solvency of social services; and ensuring that taxation and
VAT regulations do not discriminate against them, for example when entering public bidding processes.

Case study 2: Long-term care and social services 
It is almost impossible to estimate, in national terms, the impact of co-payment variations on service users across regions.
This is because, although national law implies a subjective right to access to long-term care and social services, regions
and  municipalities  can  set  co-payment  contributions  (Monserrat  Cordorniú,  2009b,  p.  135;  Vilaplana  Prieto,  2011;
Montserrat  Codorniú  and  Montejo,  2013).  However,  a  micro  analysis  of  changes  to  co-payments  reveals  that  some
service  users  have  to  increasingly  rely  on  the  market  to  meet  their  needs  in  this  sector,  which  can  cause  problems
regarding equitable access and quality of services.

Access-related outcomes

Before  the  increases  in  co-payments  in  March  2013,  telecare  had  about  133,000  beneficiaries,  which  itself  could  be
regarded  as  a  feature  of  ‘privatisation’  or  re-commodification.  According  to  the  calculations  of  the  municipality,
following the increase, about 34.3% of service users were exempt from payment because their income fell below €460.
Hence,  87,609  people  were  paying  part  of  the  cost  of  telecare,  compared  to  only  2,650  people  before  the  increase.
Following the introduction of co-payments, some service users stopped using telecare. The municipality decided that
some people considered to be at risk were exempt from the payment even if they could afford it. Nonetheless, around
3,400 service users stopped using it due to co-payment. 

Regarding home help, the city council recognises that some cancellations occurred due to co-payment and that some
service users had reduced the number of hours they engaged the service. Of the nearly 8,000 cancellations in 2013, 21%
were due to service users cancelling the service, but the council does not collect information on the reasons behind these
cancellations.  Without  reliable  data,  the  service  manager  estimates  that  around  400  cancellations  were  due  to  co-
payment. Numerous complaints were made to the council about the co-payment scheme.

Quality-related outcomes

Increased co-payment demands and the reduction in the number of home-help hours as a result of cost-cutting measures
have been problematic for some beneficiaries of this service. They complain that the standard of their care has fallen
because home-help assistants spend less time in their home, sometimes only minutes. Service users have been forced to
pay for extra staff time, sometimes from the company that provides the home-help service. It is now possible to find
households where the home-help assistants are paid for a few minutes by the city council and the service user (via their
co-payment)  and  for  some  extra  minutes  solely  by  the  service  user.  People  prefer  to  use  the  services  of  the  same
home-help assistant, rather than hire an additional, unknown assistant, who may be much cheaper but may also greatly
complicate the logistics of home care, thus negatively affecting the well-being of the person receiving care. 

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Effectiveness-related outcomes

According  to  a  manager  of  the  municipality,  huge  administrative  effort  was  involved  in  the  implementation  of  the
co-payment  scheme  for  telecare.  There  are  no  data  about  the  cost  of  this  implementation.  However,  co-payments
generated revenue of €4.5 million in 2014, which represents nearly 19% of the total cost of home-help services in Madrid
(€24 million).

Case study 3: Tertiary healthcare
Several conditions must be met in order for PPPs to achieve key outcomes regarding quality, access and effectiveness,
and  to  be  truly  profitable  for  the  government,  services  users  and  businesses,  all  of  whom  initially  have  competing
interests. These relate to risk transfer, competition, control and regulator independence (Torchia et al, 2013; Abellán,
2013; Barlow and Roehrich, 2013). 

Access-related outcomes

Ribera  Hospital  pays  the  regional  government  100%  of  the  treatment  costs  of  patients  from Alzira  treated  in  other
hospitals, such as Alzira residents who choose to seek care in other hospitals. In turn, it charges for 85% of the costs
involved in treating patients from other healthcare areas (Sekhri et al, 2011). However, the flow control between patients
and among hospitals is poor and insufficiently transparent, and inter-hospital billing is difficult (Mendoza, 2013; Acerete
et al, 2013; EXPH, 2014). Moreover, according to some authors, technological and medical developments for patients
in public hospitals in this area have been deliberately restricted to favour Ribera Hospital (Mendoza, 2013; Acerete et
al, 2013). Mendoza found an increase of 37.3% in the number of births in Ribera Hospital, compared to 2.4% in other
public hospitals, due to the fact that epidural anaesthesia was offered in this private hospital and was restricted in public
ones. A  further  criticism  is  that  this  model  encourages  campaigns  to  attract  patients,  which  goes  against  one  of  the
founding principles of the SNS – territorial planning and access to healthcare. 

Quality-related outcomes

In the Alzira model, the existence of a capita fee transfers risk to the concession holder, meaning that it encourages the
concession holder to protect the health of citizens as it receives a fixed sum for every insured service user. However, in
the  opinion  of  some  observers,  this  alleged  advantage  can  lead  the  concession  holder  to  reduce  the  quality  and  the
quantity of services, with the aim of ensuring a profit.

Patients of the Alzira model are largely satisfied both with staff support and with their healthcare, according to a survey
by the regional Ministry of Health and the University Miguel Hernández (Redacción Médica, 2014). Satisfaction rates
are similar to those regarding the SNS generally (Acerete et al, 2013). In spite of this, complaints have been made about
the cost of parking, gaps in human resources at certain times, the state of some aspects of infrastructure (such as walls
not  being  painted),  and  two  patients  having  to  share  a  room  designed  for  one  person,  which  occurs  in  40%  of  cases
according to Sindicato de Médicos de Asistencia Pública (SIMAP, undated). Regarding health outcomes, existing data
do not allow definitive conclusions to be drawn about the relative merits of Ribera Hospital when compared to other
hospitals in the Valencia region.

The management of human resources is a key factor affecting this hospital’s profit margins (Rosado, 2010). A survey of
job satisfaction, in which 43% of the workforce took part, showed that job satisfaction improved in recent years, reaching
4.33 points on a scale of 1 to 6.12 However, SIMAP has criticised its working conditions, payment of the workforce and
a reduction in the number of workers, as in the case of doctors on call (Acerete et al, 2011; SIMAP, undated). 

12

Unfortunately, there are no data available on how this compares with staff in other hospitals.

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Delivering public services: A greater role for the private sector?

Effectiveness-related outcomes

The termination of the first contract of the joint venture between the regional government and the private company was
justified on the grounds that it would improve efficiency. In their view, this was to be achieved by including primary care
in the new contract, as the concession holder would have an incentive to improve comprehensive healthcare. However,
analyses show that serious losses were made during the first years of hospital management (Acerete et al, 2011). This
was due to three factors. Firstly, the capitation fee of €204 in the first contract was recklessly low, well below the other
Spanish benchmarks. This made it difficult for the contractor to provide the clinical services required and to make a
profit for its shareholders. Secondly, profits were supposed to cover the cost of the hospital, which was ultimately much
higher  than  anticipated.  This  money  was  to  be  returned  to  the  building  companies  and  banks  involved  before  the
infrastructure was to revert to the regional public administration. As the concession had been granted for a very short
period of time (10 years), the cost of this was significant. Thirdly, the Regional Audit Office noticed some irregularities
in the way the contract was terminated, specifically the way compensation paid to the company was calculated and the
fact its final amount was very similar to the amount required for companies wishing to bid (Sindicatura de Comptes,
2007).

In relation to the transfer of risk, it can be argued that it was very limited, at least in the first phase of the Alzira model,
as it ended in a financial rescue. The SIMAP union claims capital increased between 2011 and 2014 from €620 per capita
to €678 in Ribera Hospital.

Regarding the cost of the concession and its efficiency compared with direct management of public hospitals, several
analyses show very different and even contradictory results. Arena and Alberto (2013) conclude:

the average full departmental health expenditure (primary and specialty care) by the regional Health Department
in privately run concessions in 2012 is lower than its expenditure on direct public management, by 11.7%. Some
departments with direct public management have a spending per capita lower than concessions, especially two of
nineteen.

(Arena and Alberto, 2013, p. 12)

The concession holding company, however, estimates that if it were possible to calculate the differences between the
concession model and direct public management, the former would be shown as superior in its savings, by 25%, as some
studies had suggested, according to an interview with the manager of Ribera Salud Group. 

However, some studies also suggest other substantial costs such as the ‘hidden costs’ derived from a number of factors:
government supervision or control that cannot be properly estimated; the absence in the concession hospitals of most of
the specialised clinical services that are usually the most expensive; and the fact that the capitation fee does not include
some outpatient costs, such as pharmacy costs or medical transport. Peiró and Meneu (2012) state that there is no clear
evidence that the health administrative concessions in the Valencia region can improve the costs of hospitalisation in
hospitals with direct public management. According to Acerete et al (2011, p. 25), ‘the available figures lead us to the
conclusion that the second contract [in the Alzira case] is not as good a deal for Valencia’s Department of Health as the
current official narrative claims’. (For analyses of similar concerns regarding PPPs in other contexts, see Alonso et al,
2015; Abellán, 2013; Iasist, 2012; Sánchez et al, 2013; McKee et al, 2006.) 

Finally, all respondents agree about the high risk related to the choice of suitable partners in administrative concessions.
The  alleged  advantage  of  choosing  private  companies  specialising  in  healthcare  vanishes  if  they  end  up  selling  their
share of the business to private venture capital funds, as has happened recently in some concessions in Valencia.

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Delivering public services: A greater role for the private sector?

Conclusions

No single factor can explain the increasing involvement of the private sector in the delivery of goods and services of
general interest in Spain since the mid-1980s and how this involvement has developed. The three jurisdictional levels in
Spain have made use of a wide array of public governance models for the provision of public services. Some of these
mechanisms are presented in the three selected cases analysed in this report.

Perhaps the most important conclusion from this analysis is that there is a need to strengthen monitoring instruments
and, especially, the technical capacity of governments to establish new and appropriate conditions to collaborate with
the private sector and achieve the desired results for citizens, as service users, taxpayers and workers. One of the main
reasons for this requirement is that the relationship between the state and the private and third sectors has changed; for
example,  one  of  these  changes  relates  to  organisational  innovation  occurring  in  the  third  sector.  However,  the  most
important  transformation  consists  of  the  entry  into  the  SSGI  sector  of  large  corporations  (as  seen  in  the  cases  of
healthcare, social and long-term care services).

The  potential  advantages  of  greater  private  sector  involvement  cannot  be  achieved  if  governments  are  not  able  to
guarantee  some  operating  conditions  in  relation  to  factors  such  as  the  transfer  of  risk,  competition,  independence  of
regulators, bureaucratic control and expertise, and monitoring of visible and hidden costs. All this is required from public
administrations  that  up  until  now  have  not  been  accustomed  to  dealing  with  this  type  of  private  organisation  in  this
sensitive  area  of  social  policy.  Public  administrations  should  also  evaluate  the  results  of  these  experiences  of
collaboration, but this appears to be far from an easy task. If governments are not yet used to analysing the impacts of
the programmes they design and implement, they now also face the challenge of evaluating policies being implemented
by  other  actors,  outside  public  administration.  However,  if  conditions  are  not  guaranteed  regarding  risk  transfer,
competition,  independence  of  regulators,  bureaucratic  control,  public  expertise  and  impact  evaluation,  there  may  be
some risks. Drawing on examples from the case studies, the increased presence of large corporations in providing social
services appears to have questionable effects on working conditions. In the case of the co-payment model for long-term
care, citizens will be more dependent on the market to satisfy their care needs. It is not at all certain that administrative
concessions in healthcare really represent savings for the taxpayers. In addition, there is uncertainty about the actual
owners of these corporations; problems can arise regarding the degree of their commitment to citizenship, equity and
continuity of services. 

The potential benefit of these forms of PPPs in SSGI sectors, in terms of legal, administrative, economic, political and
social conditions, and their impacts on equity and economic performance for public finances, still require a great deal of
further research and evaluation.

Sources

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reformas, Fundación BBVA, Madrid.

Acerete,  B.,  Stafford,  A.  and  Stapleton,  P.  (2011),  ‘Spanish  healthcare  –  Public  private  partnerships:  The  “Alzira
Model”’, Critical Perspectives on Accounting, Vol. 22, No. 6, pp. 533–549.

Acerete, B., Stafford, A. and Stapleton, P. (2013), PPPs in Spain: Critical financial analysis of toll road and healthcare
cases, University of Manchester and University of Zaragoza.

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Allard,  G.  and  Cheng,  A.  (2009),  ‘Public–private  partnerships  in  the  Spanish  health  care  sector’,  European  Public
Private Partnership Law Review, Vol. 4, No. 2, p. 82.

Allard,  G.  and  Trabant, A.  (2008a),  ‘Public–private  partnerships  in  Spain:  Lessons  and  opportunities’,  International
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Allard, G. and Trabant, A. (2008b), La tercera vía: En la frontera entre público y privado. Public–private partnerships’,
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Araujo,  A.  (2013),  La  colaboración  público-privada:  Entre  indeterminación,  flexibilidad  e  incertidumbre,  No. 4,
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Arena,  C.  and  Alberto,  C.  (2013),  Eficiencia  de  las  Concesiones  Administrativas  Sanitarias  de  la  Comunidad
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Arrufat,  M.  (2011),  ‘Infraestructuras,  equipamientos  y  concesiones  administrativas.  ¿Qué  papel  ha  de  tener  el  sector
público de salud?’, in Serra Martín, A. and Reig, M. (eds.), Anuario Partners 2011: Reflexiones sobre la cooperación
público-privada, Esade, Barcelona. 

Barlow,  J.  and  Roehrich,  S.  (2013),  ‘Europe  sees  mixed  results  from  public–private  partnerships  for  building  and
managing health care facilities and services’, Health Affairs, Vol. 32, No. 1, pp. 146–154.

Barriga,  L.  A.,  Brezmes,  M.  J.,  García,  G.  A.  and  Ramirez,  J.  M.  (2014),  Los  servicios  sociales  en  España  2014,
Asociación Estatal de Directores y Gerentes en Servicios Sociales. 

Bel,  G.  (2009),  ‘El  dilemma  entre  público  y  privado  en  la  gestión  de  los  servicios  públicos’,  in  Ramio,  C.  (ed.),  La
colaboración público-privada y la creación de valor público, Colección Estudios, Diputació de Barcelona, Barcelona,
pp. 39–56.

Bel,  G.  and  Costas, A.  (2001),  ‘La  privatización  y  sus  motivaciones:  De  instrumento  a  política’,  Revista  de  Historia
Industrial, Vol. 19–20, pp. 105–132.

Cabeza,  L.  and  Gómez,  S.  (2007),  ‘The  Spanish  privatisation  process:  Implications  on  the  performance  of  divested
firms’, International Review of Financial Analysis, Vol. 16, No. 4, pp. 390–409.

Calzada,  I.  and  Del  Pino,  E.  (2008),  ‘Perceived  efficacy  and  citizens’  attitudes  toward  welfare  state  reform’,
International Review of Administrative Sciences, Vol. 74, No. 4, pp. 555–574.

CES (Consejo Económico y Social de España) (2013), La aplicación de la Ley de Dependencia en España 2013, CES,
Madrid.

CES (2014), Memoria sobre la situación socioeconómica y laboral de España 2013, CES, Madrid.

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Coceta  (Confederación  Española  de  Empresas  de  Trabajo  Asociado)  (2010),  Cuando  se  trata  de  personas  las
cooperativas llevan la iniciativa. Cooperativas de trabajo de iniciativa social. Radiografía de un sector, Coceta, Madrid. 

Comisión Nacional de la Competencia (2013), Aplicación de la Guía de Contratación y Competencia a los procesos de
licitación para la provisión de la sanidad pública en España, Madrid.

Congress  of  the Third  Social  Sector  (undated), Avanzar  en  igualdad  y  derechos  sociales  Manifesto  del  IV  Congreso,
IV Congreso del Tercer Sector Social, Spain.

Deloitte  (2008),  Perspectivas  de  futuro  de  los  servicios  de  atención  a  la  dependencia.  El  servicio  de  atención  a  la
dependencia (SAD). Estudio del marco conceptual, oferta, demanda y modelo de costes, Deloitte. 

Del Pino, E. (2013), ‘The Spanish welfare state from Zapatero to Rajoy: Recalibration to retrenchment’, in Botti, A. and
Field,  B.  N.  (eds.),  Politics  and  society  in  contemporary  Spain:  From  Zapatero  to  Rajoy,  Palgrave,  New  York,
pp. 197–216.

EXPH (Expert Panel on Effective Ways of Investing in Health) (2014), Health and economic analysis for an evaluation
of the public–private partnerships in health care delivery across Europe, European Commission.

Fantova, F. (2007), ‘Algunas notas sobre la calidad de los empleos, la formación y la cualificación profesional en el
ámbito de los servicios sociales en España’, conference paper, El Foro sobre Servicios Sociales de Interés General, 17
September, Lisbon. 

Fernández Ruiz, S., Ortiz Arteaga, A., Fernández Ruiz, M. and Sánchez Bayle, M. (2013), ‘Las movilizaciones contra
la privatización sanitaria’, in Sánchez Bayle, M. (ed.), La contrareforma sanitaria, La Catarata, Madrid, pp. 205–222.

Iasist (2012), Hospitales Top 20. Benchmarks para la excelencia 2012, Barcelona.

IMF (International Monetary Fund) (2004), ‘Public–private partnerships’, available at
http://www.imf.org/external/np/fad/2004/pifp/eng/031204.htm.

López Casanovas, G., Puig-Junoy, J., Ganuza, J. and Planas, I. (2003), Los nuevos instrumentos de la gestión pública,
Colección Estudios Económicos, No. 31, Servicio de Estudios de La Caixa, Barcelona.

Madrid City Council (2012), Control de calidad de servicios para personas mayores, Madrid.

Marbán, V. and Rodríguez Cabrero, G. (2013) ‘Sistemas mixtos de protección social. El tercer sector en la producción
del bienestar’, Presupuesto y Gasto Público, Vol. 71, pp. 61–68.

Martín, J. J. (2003), Nuevas fórmulas de gestión en las organizaciones sanitarias, Working Paper No. 14, Fundación
Alternativas, Madrid.

McKee, M., Edwards, N. and Atun, R. (2006), ‘Public–private partnerships for hospitals’, Bulletin of the World Health
Organization, No. 84, pp. 890–896.

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Mendoza, M. J. (2013), ‘Privatizaciones en el País Valenciano’, in Sánchez Bayle, M. (ed.), La contrareforma sanitaria,
La Catarata, Madrid, pp. 64–89.

Menendez, A. (2008), ‘La gestion indirecta de la asistencia sanitaria publica. Reflexiones en torno al debate sobre la
privatizacion de la sanidad’, Revista de Administración Sanitaria, Vol. 6, No. 2, pp. 269–296.

Montserrat  Codorniú,  J.  (2009a),  ‘Evolución  y  perspectivas  de  la  financiación  del  sistema  para  la  autonomía  a  la
dependencia’, Revista de Documentación Administrativa, No. 276/277.

Montserrat Codorniú, J. (2009b), ‘La “tercera vía de financiación”: La contribución económica del usuario’, Presupuesto
y Gasto Público, Vol. 59, pp. 127–143.

Montserrat Codorniú, J. and Montejo, I. (2013), El copago en la Ley de Promoción de la Autonomía Personal y Atención
a las personas en situación de dependencia, Fundación Caser, Madrid. 

Monzón,  J.  L.  and  Chaves,  R.  (2012),  La  economía  social  en  la  Unión  Europea,  European  Economic  and  Social
Committee, Brussels. 

Morales, A. C. (2011), ‘Modelos de integración y desarrollo estratégico de las cooperativas sociosanitarias andaluzas’,
CIRIEC-España, Revista de Economía Pública, Social y Cooperativa, No. 71, pp. 203–226. 

Moreno Fuentes, F. J. (2015), Challenges and reforms in long-term care policy in Spain, GIGAPP Estudios/Working
Papers, Embassy of Norway, Spain.

OECD (2011a), Access to education, participation and progression, OECD Publishing, Paris.

Peiró, S. and Meneu, R. (2012), ‘Eficiencia en la gestión hospitalaria pública: Directa vs privada por concesión’, Nada
es Gratis (blog), available at http://nadaesgratis.es/?p=27263.

Redacción  Médica  (2014),  ‘La  Ribera  cumple  las  expectativas  del  97%  de  sus  pacientes’,  20  January,  available  at
http://www.redaccionmedica.com/autonomias/valencia/el-97-de-los-pacientes-de-la-ribera-recomendaria-este-
centro-4550.

Rodríguez Cabrero, G. (ed.) (2013), Servicios Sociales y Cohesión Social, Consejo Económico y Social (CES), Madrid.

Rodríguez  Cabrero,  G.  and  Marbán,  V.  (2013),  ‘Long-term  care  in  Spain:  Between  family  tradition  and  the  public
recognition of social risk’, in Ranci, C. and E. Pavolini (eds.), Reforms in Long-term Care Policies in Europe, Springer
Science+Business Media, New York, pp. 201–219.

Rosado, L. (2010), ‘La sostenibilidad y los recursos humanos del Sistema Nacional de Salud: El modelo de concesión
administrativa de la Comunidad Valenciana’, Revista de Administración Sanitaria, Vol. 8, pp. 51–62.

Sánchez, F., Abellán, J. M. and Oliva, J. (2013), ¿Gestión pública y gestión privada de servicios sanitarios públicos:
más allá del ruido y de la furia, una comparación internacional, Working Paper No. 4, Real Instituto El Cano, Madrid.

Sánchez Bayle, M. (2013), La contrareforma sanitaria, La Catarata, Madrid.

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Delivering public services: A greater role for the private sector?

Sekhri, N., Feachem, R. and Ni, A. (2011), ‘Public–private integrated partnerships demonstrate the potential to improve
health care access, quality, and efficiency’, Health Affairs, Vol. 30, No. 8, pp. 1498–1507.

Shaul, J., Stafford, A. and Stapleton, P. (2011), ‘NHS capital investment and PFI: From central government responsibility
to local affordability’, Financial Accountability and Management, Vol. 27, No. 1, pp. 1–17.

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Sindicatura  de  Comptes  de  la  Generalitat  Valenciana  (2007),  Informe  de  Fiscalización  de  la  Cuenta  General  de  la
Generalitat del ejercicio 2002, Valencia, Spain. 

Torchia,  M.,  Calabrò, A.  and  Morner,  M.  (2013),  ‘Public–private  partnerships  in  the  health  care  sector: A  systematic
review of the literature’, Public Management Review, Vol. 17, No. 2, pp. 236–261. 

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Comunidades Autónomas para la adecuada aplicación de la Ley 39/2006 14 de diciembre de promoción de la autonomía
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Gestión Pública, Editorial Centro de Estudios Ramón Areces, Madrid. 

Vilaplana Prieto, C. (2011), El copago en las prestaciones económicas de la Ley de la Dependencia, working paper,
Fundación Caser and Centre de Recerca en Economía i Salut (CRES), No. 5, Barcelona. 

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Country study: Sweden

4

Overview 

Since the end of the 1980s, the Swedish welfare state, in general, and the public sector, in particular, have undergone a
series of transformations and structural reforms. Initiated during the first half of the 1990s, these structural reforms have,
among  other  things,  encompassed  a  wave  of  deregulation  and  privatisation  aimed  at  exposing  previously  protected
public activities to competition. The implementation of these reforms has involved the dismantling of public monopolies
and an increase in for-profit private suppliers. The drive for efficiency-enhancing competition has been manifested not
only in a somewhat increasing role for private providers and an increase in outsourcing of publicly financed welfare
services, but also in organisational reforms intended to achieve more competition between different agencies within the
public sector. Prominent examples of the first wave of liberalisation were selected for the Swedish case studies and are
summarised in Table 4 below. 

Table 4: Role of the private sector in the case studies of Sweden

Sector

Public employment services 

ECEC and compulsory schools

Municipal home-care services

Source: Prepared by authors

Brief description

The monopoly of public employment services ended in 1993. Private employment agencies developed, and
labour market training started to be outsourced to private providers within the framework of the active
labour market policy.

In 1992, a voucher system was introduced favouring the entry of private primary and upper secondary
schools into the education sector, with public subsidies. In 1995, a new law enabled local government to
conclude contracts with private day-care centres. The right to choose a school or pre-school has transferred
from the public authorities to individual families. This system has increased competition somewhat between
schools, both for the recruitment of pupils and teachers.

The 1990s saw privatisation and outsourcing through procurement of services from private providers. In
some municipalities, once the care needs have been established and recognised by the local authority, senior
citizens may choose between in-house public providers and private home-care providers.

The centre-right government that took office in September 2006 took further measures to increase the role of the private
sector through outsourcing and public contracting through the establishment of a choice system, which allows service
users to choose their providers among a list established by the public authorities. Against this background, a new law,
the Act on System of Choice in the Public Sector (the LOV Act), took effect in 2009. This Act applies when a contracting
public authority (municipality, county council or state authority) decides to apply a system of choice within health and
social services (elder care and support for the people with disabilities, disadvantaged young people and people suffering
from addiction). According to this Act, the ‘system of choice’ means that an individual is entitled to choose any service
supplier (private or public) that has been approved by the contracting authority. For primary healthcare (outpatient care),
the choice of local healthcare centres is regulated by the law of free choice, and all municipalities have to comply with
the regulation.13 By contrast, the implementation of a ‘free-choice option’ for other welfare services and care activities,
such as elder care, is left to the discretion of the municipalities. In order to facilitate individual choice, local authorities
are obliged to provide detailed information about the various private providers. 

In April 2015, 155 of the 290 Swedish municipalities (53%) had implemented an extended system of free choice mainly
for elder and home care; 21 municipalities intended to introduce it in the near future (Sveriges Landsting och Kommuner,
2015). 

13

At the municipal level, the primary healthcare system is responsible for all healthcare and medical treatment that does not require
special resources in hospitals. Primary healthcare is mainly provided through the local healthcare centres.

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Delivering public services: A greater role for the private sector?

The extent of outsourcing in terms of expenditure varies significantly by activity. In 2011, the percentage of services
purchased from private for-profit and non-profit suppliers was 32% for primary healthcare, 30% for secondary schools,
17% for day care and nursery schools (pre-schools), 15% for elder care and 14% for primary schools (Statistics Sweden,
2014). 

The trend towards increased outsourcing of tax-financed services through public procurement and the introduction of the
free-choice  option  for  health,  welfare  and  care  services  has  led  to  an  increase  in  the  number  of  private  suppliers  of
publicly financed services. According to the latest available official statistics, private companies accounted for around
18% of total employment in education, healthcare and social services in 2012 – see Table 5 below – up from 8% in 2000
(Statistics  Sweden,  2014).  The  highest  proportion  of  employees  in  for-profit  private  companies  is  found  in  social
services.

Table 5: Employment by sector and organisation type, 2012 (%)

Education

Healthcare

Social services

All

Central
government 

12.0

0.1

0.9

5.1

Source: Statistics Sweden, 2014

County councils

Municipalities

State-owned

Private firms

Non-profit

0.6

75.0

0.1

18.7

66.8

0.8

72.1

52.5

1.9

4.9

0.6

2.2

13.7

18.4

23.3

18.3

5.0

0.8

3.1

3.3

In spite of the increase in the share of employees working in private firms in the welfare sector, Sweden remains, by
international  standards,  a  country  with  large  public  employment,  reflecting  a  continuing  and  very  strong  public  and
political involvement in the in-house provision of a wide range of services. The public sector maintains its role as the
main  provider  for  crucial  service  activities  –  notably  childcare,  elder  care,  healthcare,  education  (including  higher
education) and services for people with disabilities. According to the law, local authorities are also responsible for the
monitoring and control of private providers. They are legally obliged to ensure that the outsourced activities conform to
current objectives and regulations at national and local levels.

A 2011 report by the Swedish Centre for Business and Policy Studies provides background on the major restructuring of
welfare services carried out in Sweden over the previous 20 years (Hartman, 2011). (Up to the end of 2014, no scientific
evaluations of the expected beneficial impact of increased competition on economic efficiency and growth have been
undertaken.)  By  analysing  a  range  of  studies  that  have  investigated  privatisation  and  liberalisation  across  several
different  services,  the  report  concludes  that  the  major  challenge  that  remains  for  researchers  is  that  of  accurately
measuring the quality of a service being provided, especially when assessing services dealing with users with different
characteristics and requirements (Hartman, 2011).

In the course of this case study research, only one opinion survey was found in Sweden regarding the public debate on
the outsourcing of public services to private providers: the Novus survey (SVT, 2012). According to this, a large majority
of respondents (88% in 2012) were against for-profit providers in tax-financed welfare services (education, healthcare
and social services). Some differences existed according to the political preferences of the respondent, with traditional
right-wing  voters  being  more  likely  to  accept  for-profit  private  providers  within  tax-financed  services  (25%)  than
traditional  left-wing  voters  (2%).  It  is  also  interesting  to  note  that  among  right-wing  voters  in  favour  of  for-profit
companies, a clear majority (more than 60%) declared that the profit should be re-invested in the company.

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Delivering public services: A greater role for the private sector?

Case study 1: Public employment services 

Background and objectives
The  choice  of  first  case  study  –  placement  activities  administered  by  the  public  employment  service  –  is  primarily
justified by the central role played by labour market policy in Swedish stabilisation policies, and also by the increasing
outsourcing of placement activities and other active labour market policy measures, and the growing share of private
providers  in  this  sector.  In  2007,  the  former  Swedish  centre-right  government  gave  the  public  employment  service
instructions to use private contractors more actively (as an alternative to in-house job placement provision). The explicit
aim  was  to  improve  matching  efficiency  through  improved  technology  and  by  strengthening  groups  with  weak
attachment in the labour market by using more personalised services, such as job coaching, which is aimed at enhancing
job-seekers’ chances of getting a job. According to the government, stronger competition was also expected to induce an
increase  in  productivity  and  efficiency  of  both  public  and  private  providers.  Between  2009  and  2013,  the  number  of
private  providers  increased  from  30  to  112,  and  the  number  of  participants  enrolled  in  job  placement  activities  or
rehabilitation programmes conducted by these private contractors grew from around 15,000 in 2009 to 121,000 in 2012.

Financing 
In  Sweden,  all  active  labour  market  measures  (labour  market  training,  employment  subsidies  and  job  placement
activities)  are  financed  through  the  state  budget.  Private  contractors  are  selected  and  financed  via  the  local  public
employment service budget, and the coaching and placement activities are, irrespective of the type of provider, free of
charge for the registered unemployed job-seeker. The payment of the private contractors is largely based on successful
placements. Contractors are paid 40% when the job-seeker starts the programme, 30% when the job-seeker has signed
a  full-time  employment  contract  with  a  duration  of  at  least  three  months,  and  30%  when  the  job-seeker  has  been
employed for three months.

Implementation and management
Since 2009, the Swedish public employment service at local level makes use of the abovementioned LOV Act for putting
together a list of private providers that can be chosen by registered job-seekers. The selection of private providers is
based on formal criteria regarding the competence and experience of the company concerned. As previously mentioned,
job coaching and placement activities can be provided directly by the public employment service or by private suppliers.
Firstly,  the  caseworker  at  the  public  employment  service  decides  if  the  job-seeker  is  in  need  of  an  intensified  job
placement. Following this, the job-seeker might choose in-house or private coaching from the list of providers. Both
public and private job coaches help job-seekers to develop job application documents and set short-term and long-term
goals. Each job coach simultaneously provides support to about 20 job-seekers. According to the person interviewed at
the public employment service, the increased outsourcing of search and coaching activities to private actors has made it
possible to stabilise the number of job-seekers per caseworker and reduce the workload. In other words, the outsourcing
of part of job placement activities previously performed in-house was partly aimed at solving a capacity problem related
to  an  increase  in  registered  unemployed  job-seekers  in  the  aftermath  of  the  2008  economic  crisis.  The  public
employment  service  is  in  charge  of  the  monitoring  and  control  of  the  service  provided  by  the  private  suppliers,  and
follow-up studies have been performed by the public employment service at central level (see Outcomes section below).

Case study 2: ECEC and compulsory schools

Background and objectives
The choice of the second case study – pre-schools and schools – was motivated by the major transformations of the
Swedish  educational  system  over  the  last  two  decades,  with  a  particularly  clear  trend  towards  an  increasing  role  for
independent  providers.  In  parallel  to  an  increase  in  the  number  of  private  schools,  in  the  early  1990s  Sweden  also
underwent  a  clear  decentralisation  of  governance. The  decentralisation  reform  of  pre-school,  compulsory  school  and

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Delivering public services: A greater role for the private sector?

upper  secondary  school  from  central  government  (the  state)  to  the  local  municipalities  was  launched  by  the  social-
democratic  government  and  implemented  in  1991.  Since  then,  municipalities  have  been  responsible  for  running  and
financing pre-school education (1–5 years: Förskola), compulsory schooling (6–9 years: Grundskola), as well as upper
secondary education (16–19 years: Gymnasieskola). 

Since 1992, local schools can also be owned and run by private providers. In 1995, this was extended to pre-schools,
and the fact that private childcare centres could benefit from the same state subsidies as public childcare centres has had
a determining effect on the subsequent development of publicly financed private pre-schools. The ‘school market’ that
emerged after this reform transferred the right to choose a school from the public authorities to individual families. This
system has increased competition somewhat between schools, both for the recruitment of pupils and teachers. 

In 2013, there were independent pre-schools in 239 of Sweden’s 290 municipalities. In that year, a total of approximately
489,300 children were enrolled in pre-schools (Skolverket, 2014), constituting 84% of all children aged one to five years.
A large majority of pre-school children are enrolled in pre-schools with municipal education providers, although private
pre-schools became more common in Sweden during the 1990s and continued to increase during the 2000s. The share
of pre-school children enrolled in private pre-schools increased from 15% in 2000 to 20% (97,400 children) in 2013.
That year, there were 7,350 municipal pre-schools and around 2,580 independent pre-school providers (cooperatives,
foundations and limited companies); in other words, around 35% of pre-schools were run by private providers. It should
be noted that it is relatively common for providers of pre-schools to also run compulsory schools. Approximately 1 in
10 private education providers was active in both types of schools in 2013. The most common form of operation in pre-
schools  remains  cooperatives,  often  run  by  parents.  Of  all  independent  pre-schools  in  2013,  around  43%  were
cooperatives, 38% limited companies and 12% non-profit associations or foundations. 

Since the educational policy reforms introduced in the 1990s, the number and the share of private compulsory schools
has  also  been  increasing  gradually.  In  2013,  16%  of  all  compulsory  schools  were  owned  and  run  by  private  bodies,
covering 13.6% of pupils (130,000 approximately). Of these pupils, around two-thirds attend compulsory schools run by
limited  companies.  Between  2009  and  2013,  the  number  of  private  compulsory  schools  increased  by  12%  and  the
number  of  pupils  in  independent  primary  schools  rose  by  31%.  Since  2009,  an  increasing  number  and  a  growing
proportion of pupils attend compulsory schools run by limited companies (Skolverket, 2014). 

Regarding  employment  developments  at  the  pre-school  level,  the  number  and  proportion  of  teachers  working  for
independent schools has been increasing during the last decade. The share of full-time equivalent employees working in
private  childcare  increased  from  15.2%  in  2000  to  20.3%  in  2013. The  number  of  pupils  per  pre-school  teacher  has
significantly decreased from around 8.6% in 2000 to 6.2% in 2013 (Skolverket, 2014), with no difference according to
type of provider. At the compulsory level, there has been a trend of decreasing employment, with the number of teachers
falling from around 86,300 in 2001 to 78,100 in 2013; however, the number of teachers per 100 pupils has remained
fairly constant (around 8 teachers per 100 pupils). During this period, the share of teachers employed in the public sector
decreased from 93.2% to 85.8%, reflecting the expansion of private schools. 

Financing 
Childcare in Sweden is highly subsidised and financed by local authorities. At the pre-school level, parents co-finance
childcare  activities  by  paying  a  fee.  Regardless  of  the  form  of  ownership,  the  fee  is  fixed  by  the  municipality  and
dependent  on  household  income  and  the  age  of  the  child.  In  the  local  authority  that  participated  in  this  case  study
(Göteborg city), the maximum monthly fee is SEK 1,260 (€131 as at 12 August 2015) for children younger than three
years and SEK 840 (€87) for children aged between three and five years. Private pre-schools are not allowed to charge
additional fees.

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Delivering public services: A greater role for the private sector?

Since  1992,  at  the  compulsory  level,  each  municipality  is  obliged  to  finance  each  pupil  by  a  voucher  (Skolpeng),
regardless of the form of ownership. In other words, compulsory schools are free of charge, and private schools receive
the same amount of money per pupil as public schools and are not allowed to charge additional fees.14

Implementation and management
The  Swedish  parliament  (Riksdag)  and  the  government  set  out  the  goals  and  guidelines  for  pre-schools  and  schools
through  the  Education  and  Curricula  Act.  A  special  state  agency,  the  Swedish  National  Agency  for  Education
(Skolverket)  is  responsible  for  the  attainment  of  the  established  goals.  Another  state  agency,  the  Swedish  Schools
Inspectorate (Skolinspektion) assesses applications to run a private school and is in charge of the accreditation of private
schools. Skolinspektion performs regular follow-up and evaluation surveys targeted at pupils, parents and teachers in
both public and private schools to ensure that they follow regulations regarding curricula, quality of education, school
environment, and other criteria of school achievement.15 The parents are free to choose a school for their children based
on  a  predetermined  list  managed  by  the  municipality  in  the  case  of  pre-schools  and  the  Skolverket  in  the  case  of
compulsory and upper secondary schools.

Case study 3: Municipal home-care services 

Background and objectives
Over  the  past  decade,  the  Swedish  home-care  system  for  older  people  has  experienced  major  organisational  changes
regarding  both  the  provision  of  services,  with  the  expansion  of  private  for-profit  providers,  and  changes  in  work
organisation (involving the rationalisation of tasks). A growing number of municipalities have abandoned the previous
system  of  direct  administrative  control  of  service  provision  and  have  introduced  a  purchaser–provider  system.  As
previously mentioned, the LOV Act leaves implementation of a free-choice option for care activities other than primary
healthcare to the discretion of the municipalities. Some municipalities have therefore extended this free-choice option to
home care, implying that once the care needs have been established and recognised by the local authority, senior citizens
may  choose  between  in-house  public  providers  and  private  home-care  providers.  In  other  words,  actual  home-care
services are provided either by municipal employees (in-house) or private organisations (mainly for-profit companies)
on the basis of contractual agreements. 

Since 2000, there has been a clear trend of falling numbers of senior citizens in residential care and a corresponding
increase in home-care services. While this reallocation of resources might be partly ascribed to changes in individual
preferences  for  being  cared  for  at  home,  it  also  responds  to  cost-minimising  considerations,  the  cost  of  home-care
services  being  much  lower  than  residential  care.  Typical  home-care  services  include  help  with  getting  dressed,  help
during meal times and support during walks, as well as cleaning, washing and shopping activities in the household.

The 2008 LOV Act has also had an impact on the development of outsourcing of home care to private providers. In 2013,
121 municipalities (42% of all Swedish municipalities) outsourced part of their home-care services to private providers
(Socialstyrelsen,  2014).  The  share  of  care  hours  for  older  people  provided  by  private  companies  has  increased
continuously, from 7% in 2000 to 23% in 2013 (see Socialstyrelsen, 2013). 

14

15

The Swedish school voucher programme was introduced in 1992 by the then centre-right government. First, the Social Democrats
opposed  the  reform,  but  after  having  returned  to  power  in  1994  they  not  only  accepted  it  but  also  expanded  the  legislated
compensation level of the voucher.

Authorisation  for  starting  and  running  a  pre-school  is  left  to  the  local  authorities.  This  role  is  also  performed  by  a  special
administrative unit at the municipal level.

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Delivering public services: A greater role for the private sector?

Växjö municipality was chosen for this case study because it is one of the 84 municipalities that have extended the LOV
Act to encompass other social care services such as elder care. Furthermore, over the past three years, Växjö municipality
has experienced an increase in the privatisation and outsourcing of elder care (both residential and home-care services)
to private suppliers. The main motives local politicians had for increasing outsourcing and contracting out to private
providers  were,  as  expected,  enhanced  freedom  of  choice  for  senior  citizens  and  the  potential  beneficial  impact  of
increased competition on cost and economic efficiency. Currently, private for-profit companies provide around 30% of
residential and home-care services, the remainder being provided by the municipality. In 2013, around 1,200 employees
worked in the municipal elder care sector (comprising 1,100 auxiliary nurses and 100 nurses).

Financing 
The municipalities finance home-care services, but part of the cost, independent of type of provider, is co-financed by
the user in a form of a monthly fee. The amount of this fee depends on household income and the extent of home-care
services being used. In 2014, the maximum monthly fee per person in the Växjö municipality was SEK 1,776 (€185),
and the hourly fee cannot exceed SEK 330 (€34). For senior citizens with a low net disposable income, home care is free
of charge.16 The hourly fee is paid directly to the municipality and not to the private company. It should be noted that in
the case of home care, private providers cannot compete on price since it is the local authority that determines the unit
cost for home-care services. 

Implementation and management
Elected local politicians establish the selection criteria for the choice of private providers during the procurement and
selection process. In the municipality of Växjö, the criteria for selecting private providers are based solely on the quality
of  the  service  provided  and  not  on  price  competition.17 The  municipality  conducts  follow-up  surveys  and  evaluation
studies  each  year  to  check  whether  quality  requirements  and  regulations  are  being  followed  by  the  private  service
providers. The municipality also conducts a yearly follow-up opinion survey among the customers of both municipal and
private home care in order to monitor service quality. 

Decisions about eligibility and the amount of home care granted remain the responsibility of local authorities. Senior
citizens have to apply to the municipality for home care. Once the care needs have been established by the administrative
officer and granted by the local authority, senior citizens may choose between the in-house public provider and private
home-care  providers.  The  list  of  private  providers  is  available  on  the  municipality  home  page.  If  the  user  does  not
choose, municipal employees will deliver care in-house. The user has the right to switch providers.

Outcomes

Case study 1: Public employment services 

Access-related outcomes

No problems arise regarding access to the public services in Sweden included in this case study. Access to private (for-
profit and non-profit) and public providers is equitable. Moreover, public employment services are free of charge for
service users, as is the case in all case study countries, regardless of the nature of the provider. 

16

17

46

Single people aged over 65 years pay a home-care fee if their net income after basic consumption costs exceeds SEK 5,023 (€524)
per month. Such costs include food, clothing, shoes, hygiene, housing costs (such as electricity), home insurance, television fees,
hospital and dental care, telephone, travel and furniture.

This is alongside the requirements regarding the formal qualification of employees – auxiliary nurses and nurses.

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Delivering public services: A greater role for the private sector?

Quality-related outcomes

Two  recent  evaluation  studies  have  been  conducted  to  analyse  the  impact  of  outsourcing  coaching  and  placement
activities. The first study was an attempt to evaluate the outcome of the job-coaching programme (Gartell, 2011). One
of  its  objectives  was  to  compare  the  likelihood  of  individuals  who  received  public  (in-house)  coaching  getting  a  job
versus those who had private job coaching. The author found that, overall, the probability of participants getting a job
was not related to having been coached by a private or public provider. 

The second study also aimed to empirically assess whether private contractors are more efficient than public providers,
in this case in relation to placing unemployed people, and to establish whether the satisfaction of these job-seekers differs
by type of provider (Bennmarker et al, 2013). The study used an experimental approach involving a random assignment
of participants. The authors found that private job placement agencies tend to use a more labour-intensive technology,
more  personalised  services  and  were  more  successful  at  motivating  job-seekers  to  search  more  thoroughly  for  work.
Compared to job-seekers at the public employment service, unemployed job-seekers enrolled in job placement activities
with private providers spent more time with their case ofﬁcer, received more help in improving their job search strategies
and exhibited, on average, a greater search intensity. Furthermore, the job-seekers enrolled with private providers said
that they were more satisfied with their caseworker and the service received. 

Effectiveness-related outcomes

The  higher  level  of  interaction  between  job-seekers  and  caseworkers  in  private  placement  agencies  and  the  related
increase in job-seekers’ job search intensity did not improve their overall chances of finding a job. These results suggest
that in the case of Sweden’s public employment service services, there are no large efficiency gains to be made from
outsourcing job placement activities to private providers. 

Case study 2: ECEC and compulsory schools

Access-related outcomes

As  noted  in  the  outcomes  on  quality  and  effectiveness  below,  students  in  private  schools  fare  better  than  their
counterparts in public schools. This has raised questions about equity of access to the two different types of providers.
However, the capacity of private schools to discriminate and pre-select pupils seems, according to the Skolinspektionen,
extremely  limited  at  the  pre-school  and  primary  school  levels.18 Generally,  admission  to  both  private  and  municipal
schools depends mainly on a waiting list, or queue system. In other words, there are strong reasons to believe that the
difference  in  the  socioeconomic  composition  of  pupils  across  different  providers  is  the  outcome  of  a  self-selection
process,19 with well-educated parents being more inclined to place their children in private independent schools, and
cannot be ascribed to discriminating behaviour by private providers, in particular behaviour favouring pupils from higher
socioeconomic groups.

18

19

The selection criteria are the same for municipal and private schools. The most common criteria are geographical proximity, date
of application, and whether or not a pupil already has a sibling attending the school. The Swedish School Inspectorate controls
adherence to these rules.

Another possible explanation could be housing segregation, with private schools being established in more affluent areas.

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Delivering public services: A greater role for the private sector?

Quality- and effectiveness-related outcomes

In  recent  years,  one  issue  that  has  generated  lively  debate  in  Sweden  is  whether  the  right  to  choose  a  school  has
contributed to the significant increase in the spread of pupils’ performance and results across education providers. As
shown  by  empirical  evidence,  school  performance  and  pupil  achievement  are  positively  correlated  with  parental
educational  attainment.  In  2014,  Skolverket  conducted  a  study  comparing  the  family  socioeconomic  backgrounds  of
pupils across different providers. Compared with pupils attending municipal schools, pupils in private schools are more
likely  to  come  from  families  with  more  favourable  socioeconomic  status  and  levels  of  educational  attainment.  Some
differences exist among the various types of private providers. Foundations and non-profit associations have the highest
proportion  of  pupils  with  parents  with  higher  educational  attainment  (three-quarters  with  tertiary  education),  while
limited companies display the lowest share among private schools. 

Case study 3: Municipal home-care services 

Access-related outcomes

As  in  all  the  case  study  sectors  in  Sweden,  access  to  home-care  services  is  universal  and  equitable  in  terms  of  both
private and public providers. The main concern and potential drawback of private elder care is the potential for a lack of
continuity in the provision of services; this was the view of a municipality official interviewed for the case study, who
was in charge of outsourcing, supervision and monitoring of private elder care and home care, based on a survey on
quality conducted by the municipality.

Quality-related outcomes

According to the last follow-up and satisfaction survey conducted by the National Board of Health and Welfare, there
has been an increase in the proportion of older people who use private providers expressing satisfaction with their care
(Socialstyrelsen,  2014).  Specifically,  there  has  been  an  increase  in  the  proportion  reporting  that  they  have  greater
influence on the time their home-care service is delivered and that the private provider takes into account their opinion
and requests for help (Socialstyrelsen, 2014). On the other hand, the results of the survey show that users of private
providers of home-care services are not more satisfied than users of public home-care services. 

Effectiveness-related outcomes

During  the  research  for  this  case  study,  no  scientific  evaluation  studies  or  cost–benefit  analyses  was  identified.  It  is
therefore  difficult  to  assess  the  potential  efficiency  and  cost–benefit  gains  associated  with  the  outsourcing  of  tax-
financed home-care services to private providers.

Conclusions 

Over  the  past  two  decades,  Sweden  has  undergone  major  structural  and  institutional  reforms  that  have,  among  other
things, led to a dismantling of existing public monopolies and an increase in for-profit private suppliers. The related
increase in outsourcing of tax-financed services should therefore be put in its broader context: a tendency towards market
deregulation and privatisation initiated in the early 1990s. Four main reasons have been advanced in Sweden justifying
the increased outsourcing of tax-financed services: 

n

n

n

fiscal consolidation and reduction of public expenditure; 

the development of competition due to the increased diversity of private providers; 

the expected related improvement in economic efficiency; 

n greater freedom of choice for citizens. 

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Delivering public services: A greater role for the private sector?

Therefore,  one  central  issue  and  policy  question  debated  in  Sweden  has  been  to  assess  the  extent  to  which  private
contractors are better and more efficient at providing welfare services than public providers. The few Swedish scientific
evaluations cited in this report tend to show that efficiency gains associated with outsourcing of tax-financed services
remain questionable. It is not clear, particularly when taking into account procedural, follow-up and monitoring costs,
that the increased outsourcing of tax-financed services is cost-efficient and welfare-enhancing, while not directly having
an  impact  on  access  or  quality. As  shown  in Anxo  and  Ericson  (2012),  regional  variation  in  municipalities’  use  of
outsourcing seems to reflect political and ideological choices rather than a quest for economic efficiency. On the other
hand, the fact that several public agencies exercise strict control to ensure that both public and private providers follow
current  regulations  and  respect  the  quality  requirements  might  constitute  a  guarantee  that  the  outsourcing  of  public
services  does  not  lead  to  a  deterioration  in  quality.  In  addition,  the  fact  that  the  criteria  for  the  selection  of  private
providers are based mainly on the quality of service provided and not on price competition further reduces the risk of a
decrease  in  quality.  Furthermore,  private  providers  cannot  compete  on  wage  levels  as  they  have  to  follow  the
employment conditions agreed for the sector as a whole. 

The  Swedish  experience  tends  to  show  that  potential  problems  regarding  affordability  and  accessibility  are  limited
because private suppliers are not allowed to charge additional fees, the price of welfare services is regulated and fixed
by the state or local authorities and is highly subsidised, and co-financing by users depends on their household income.
The fact that private providers have limited room for manoeuvre in selecting users of their services can also constitute
a  good  guarantee  for  equal  treatment  (of  workers  and  service  users)  by  reducing  their  capacity  to  engage  in
discriminatory  behaviour.  Last  but  not  least,  the  large  majority  of  follow-up  and  opinion  surveys  performed  by  the
authorities show that users are, as a whole, satisfied with the services supplied by both private and public providers. As
shown in Anxo and Ericson (2012), due to the specificity of the industrial relations system (high union density and high
coverage of collective agreements), the increased outsourcing of public services in Sweden has up to now not entailed a
deterioration in pay or working conditions nor increased labour market segmentation, as has been the case in many other
EU Member States. 

However, the recent bankruptcy of a number of private schools in Sweden as well as some problems in large residential
care  homes  owned  by  multinational  venture  capital  companies  demonstrate  the  need  for  a  long-term  and  broad
evaluation  of  the  risks  and  impact  of  outsourcing  public  services.  These  developments  also  show  that  more  control
should be exercised regarding the financial transactions of private providers and that there is a need for greater economic
transparency of private entities in order to better insure the continuity of service provision, in particular for sensitive
activities  such  as  childcare  and  elder  care.  This  would  require  legislative  steps  to  reduce  the  right  to  ‘commercial
confidentiality’ enjoyed by private companies.

Sources

Anell,  A.  (2011),  ‘Hälso-  och  sjukvårdstjänster  i  privat  regi’,  in  Hartman,  L.  (ed.),  Konkurrens  konsekvenser,  SNS
Förlag, Stockholm, pp. 181–214.

Anxo,  D.  and  Ericson,  T.  (2012),  The  effects  of  pay  reforms  and  procurement  strategies  on  wage  and  employment
inequalities in the Swedish public sector, European Commission, Brussels.

Bennmarker, H., Grönqvist, E. and Öckert, B. (2013), ‘Effects of contracting out employment services: Evidence from
a randomized experiment’, Journal of Public Economics, Vol. 98, pp. 68–84.

Blomqvist, P. (2004), ‘The choice revolution: Privatization of Swedish welfare services in the 1990s’, Social Policy and
Administration, Vol. 38, No. 2, pp. 139–155.

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49

Delivering public services: A greater role for the private sector?

Gartell, M. (2011), Interna and externa coachingstjänster, Arbetsförmedlingen, Stockholm. 

Hartman, L. (ed.) (2011), Konkurrens konsekvenser: Vad händer med svensk välfärd?, SNS Förlag, Stockholm.

Jordahl, H. (ed.) (2012), Den Svenska Tjänstesektorn, Studentliteratur AB, Lund.

Skolverket (2014), Private actors in preschools and schools, Report 410, Skolverket, Stockholm.

Socialstyrelsen (2013), Äldre och personer med funktionsnedsättning – regiform år 2012, Official Statistics of Sweden,
Stockholm.

Socialstyrelsen (2014), Vad tycker de äldre om äldreomsorgen?, Socialstyrelsen, Stockholm. 

Statistics Sweden (2011), Labour Force Survey (various years), available at http://www.scb.se/am0401/. 

Statistics Sweden (2014), Financiers and providers within education, health care and social services, 2012, Statistika
meddelanden, OE 29 SM 1401, Official Statistics of Sweden, Stockholm.

Sveriges Landsting och Kommuner (2015), Statistics about the LOV Act, available at
http://skl.se/download/18.6bcd6a6714d9a54e2b921735/1433317797425/skl-LOV-karta-kommuner-april-2015-
redigerad.pdf.

SVT (Sveriges Television) (2012), ‘Klar majoritet vill styra vinster i privat välfärd’, 3 July, available at
http://www.svt.se/nyheter/inrikes/klar-majoritet-vill-styra-vinster-i-privat-valfard.

Szebehely,  M.  (2011),  ‘Insatser  för  äldre  och  funktionshindrade  i  privat  regi’,  in  Hartman,  L.  (ed.),  Konkurrens
Konsekvenser: Vad händer med svensk välfärd?, SNS Förlag, Stockholm.

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Country study: United Kingdom

5

Overview

The  trend  towards  privatisation  in  the  UK  public  sector  reflects  a  general  ‘marketisation’  of  services  and  the
mainstreaming  of  commissioning  into  public  sector  activity.  This  has  been  carried  out  through  the  policies  of
‘compulsory competitive tendering’ during the 1980s and 1990s and ‘best value’ during the 2000s (Whitfield, 2012). The
clearly stated ambition of the Conservative–Liberal coalition administration of 2010–2015 was to break the monopoly
of  state  provision  in  health  and  social  care,  making  commissioners  receptive  to  ‘any  qualified  provider’
(HM Government Cabinet Office, 2011). Since the start of the economic and financial crisis, the UK has undertaken an
ambitious programme of macroeconomic restructuring involving direct reductions in public sector expenditure and the
erosion of welfare entitlements. It is also believed that there is significant scope for efficiency and productivity gains in
welfare  services  through  better  targeting  and  strengthening  of  the  commitment  to  a  ‘mixed  economy’  of  provision
(in public, private and independent sectors), underpinned by a lightly regulated pro-business environment. 

The use of private sector provision is predicated on the notion of ‘customer choice’, and the assumed inherently higher
levels of efficiency and productivity driven by the profit motive: cost savings of around 20% are assumed possible with
each contract placed with the private sector (Whitfield, 2012). This faith in private sector markets tends to underestimate
the increased administrative burden of contract management, and earlier studies suggest that many of the cost savings
are derived from job losses, changes to working practices, and cuts to pay and conditions (Halford, 1982; Escott and
Whitfield, 1995). 

Including capital spend, the public services market is worth almost GBP 200 billion (approximately €280 billion) per
year, covering service areas such as facilities management, prisons, information and communications technology (ICT),
community health and helping the unemployed back to work (NAO, 2013). Local government spends close to GBP 40
billion (€56 billion) every year on both goods and services supplied by external providers, making extensive use of the
private, voluntary and community sectors for a range of core functions such as waste management and environmental
and leisure services, along with children’s services and social care for older people (LGA, 2014). In contrast, service
areas  such  as  social  housing  are  not  typically  labour  intensive,  and  private  sector  control  represents  just  2%  of  total
market value (primarily in the management and maintenance of housing stock) (CBI, 2012). 

Social investment in welfare is seen as a means of reducing social exclusion and improving the development of human
capital: for example, the provision of high-quality affordable childcare complements labour market activation policies
and  supports  the  early  educational  attainment  of  children  (particularly  those  from  disadvantaged  backgrounds).  But,
despite  some  changes  to  the  tax  system  and  an  increase  in  the  supply  of  childcare  places,  the  UK  has  made  limited
progress on addressing child poverty and the cost of childcare (European Commission, 2015).

In the view of a national officer at the public service trade union UNISON, there is a fundamental tension between the
profit  motive  and  high-quality  public  services,  particularly  where  providers  subcontract.  Building  in  multiple  profit
layers  is  neither  cost-effective  nor  in  the  best  interests  of  the  service  users,  and  inevitably  leads  to  the  worsening  of
employee pay and conditions, which bears heavily on an already low-paid, part-time female workforce. 

Also of concern is the lack of transparency around the financing and ownership of large private sector providers (for
example,  care  firms  backed  by  overseas  hedge  funds)  and  the  accountability  to  local  citizens.  The  collapse  of  the
Southern Cross chain of nursing homes in 2011 revealed extensive problems associated with the labyrinthine financial
structure of the company, which was backed by private equity. Southern Cross used the sale and leaseback of care-home
properties  to  expand  during  the  2000s,  but  this  left  the  company  highly  exposed  to  financial  risk  resulting  from  a
combination of rising rents and decreasing incomes when local authorities cut back on social care spending after 2009.
The majority of the 750 homes operated by Southern Cross were transferred to new ownership during 2011 and 2012,

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Delivering public services: A greater role for the private sector?

but there was a significant period of uncertainty for the 30,000 residents. Around the same time, evidence surfaced of
serious mistreatment of residents at one of the company’s care homes, which was attributed to systemic mismanagement
(The Guardian, 2011). UNISON emphasised the success of insourcing (or ‘remunicipalisation’) exercises in a number
of local authorities, which, it was argued, had helped to minimise the risks associated with contract failure and poor
performance, while also lowering running costs through better staff management and reduced turnover.

A public sector policy expert suggested that all UK political parties fundamentally accept private provision of public
services, and, while there may be some minor variations in the pace and scope of outsourcing, there was no appetite to
return all services to public ownership. The issue that ministers and senior civil servants had failed to grasp was the
complexity  of  large  contracts,  particularly  in  areas  such  as  ICT.  Such  contracts  invariably  ended  up  being  hugely
expensive and inflexible, with multinational companies offering standardised products at inflated prices, with little of the
innovation or creativity expected of the private sector. It was recognised that large firms could streamline transactional
tasks and cut back office costs. However, it was argued that this was not radically different from the economies of scale
that  could  be  achieved  in  the  public  sector,  and  payment-by-results  systems  had  not  delivered  a  step  change  in
performance. Although some parts of central government were exploring new ways of delivering public services through
cooperative structures and online ‘self-service’, the approach to outsourcing across much of the public sector was much
more traditional, often based on long-term buyer–supplier relationships, with high costs for variations to agreed outputs.

Table 6 summarises the main trends in the private sector’s role in the case studies chosen for the UK. 

Table 6: Role of the private sector in the case studies of the UK

Sector

Adult training and employment
services 

ECEC

Adult social care

Source: Prepared by authors

Brief description

The state now acts as the first point of contact and referral only for the first three months of unemployment.
Since 2012, responsibility for the main elements of adult training and employment (such as job search and
brokerage) are wholly managed by large private sector firms known as prime contractors.

There is no universal entitlement to full-time free childcare for children under two years old, although the
state offers subsidies in the form of: (1) additional tax credits for low-income parents to cover the costs of
childcare; and (2) childcare vouchers available to employer-administered salary sacrifice schemes. The
private sector tends to provide the majority of nursery care for children under school age (five years), along
with private childminders. 

Many social care services for older people were transferred out of direct state ownership during the 1990s
and 2000s as comparatively high pay and conditions made in-house services increasingly uncompetitive.
The vast majority of residential and nursing home places are supplied by private for-profit providers.

Case study 1: Employment and training for job-seekers

Background and objectives
Reforming welfare and ‘making work pay’ was a flagship policy reform of the Conservative–Liberal coalition. Whereas
the public sector used to directly support unemployed people with benefits advice, training, job searches and referrals to
other agencies, Job Centre Plus, part of the Department for Work and Pensions (DWP), now acts only as the first point
of contact and referral for the first three months of unemployment. The rest is outsourced under a government welfare-
to-work programme known as the Work Programme. The substantive elements of the Work Programme, such as training,
job  search  and  brokerage,  are  now  wholly  managed  by  large  private  sector  firms  known  as  prime  contractors,  for
example A4e, which holds contracts worth GBP 200 million (€280 million) per year.

Financing
The  Work  Programme  costs  around  GBP  1.2  billion  (€1.7  billion)  per  annum  to  run,  and  the  majority  of  prime
contractors’ income is derived from a payment-by-results system that incentivises the achievement of sustainable work

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Delivering public services: A greater role for the private sector?

outcomes for clients. The proportion of payments for new entrants to the Work Programme (‘attachments’) has declined
over  time,  although  there  are  few  controls  that  the  DWP  can  exercise  over  the  content  of  support  and  intervention
packages  (IPPR,  2014).  It  appears  that  the Work  Programme  is  cheaper  than  the  state-run  New  Deal  scheme,  which
operated up until 2010; however, by definition, a payment-by-results system means the worse the outcomes, the lower
the  cost,  so  it  is  not  yet  clear  whether  it  represents  good  value  for  money  (IPPR,  2014).  Support  and  training  are
notionally  free  for  job-seekers,  although  there  are  penalties  for  non-compliance  with  agreed  interventions  and  job
searches, such as the freezing or withdrawal of welfare payments.

Implementation and management
One element of the Work Programme that has come under significant scrutiny is assessments of eligibility for incapacity
benefit (‘fitness-for-work tests’). These were introduced in 2008 and performed by the private sector under contract to
the DWP. The rapid tightening of eligibility criteria after 2010 has led to an increasing number of apparently arbitrary
decisions to disallow disability benefits, as evidenced by high rates of successful appeals from claimants. In the wake of
sustained  public  criticism  over  the  assessment  process,  the  French  outsourcing  firm  Atos  bought  itself  out  of  the
remaining 12 months of a contract to provide these assessments in early 2014 (The Guardian, 2014). The pressure to
implement change quickly appears to have led to a rushed transition to the new arrangements, creating problems with
staffing levels, a strained relationship between job centres and prime contractors, and weak performance measurement,
despite the fact that the payment-by-results system was introduced to explicitly prevent rewards for failure (Grimshaw,
2012). 

Case study 2: ECEC

Background and objectives
The  evolution  of  childcare  and  early  education  policy  in  the  UK  reflects  the  long-standing  ambitions  of  central
government to: 

n

n

n

augment welfare with private services; 

raise educational attainment; 

increase labour market participation by offering targeted state transfers to working parents. 

There is no universal entitlement to full-time, free childcare for children under two years old, but once children reach
the age of two years, they are entitled to 15 hours of free ‘early education’ provision each week for 38 weeks of the year,
until statutory school age (the next academic term after they turn five). Places in full day care make up over 60% of the
pre-school market, day care in children’s centres 2%, sessional care 20 just under 20% and private childminders around
18%. The private sector tends to provide the majority of full day care, while the state-maintained sector provides most
of the childcare through children’s centres, and the not-for-profit sector tends to provide the majority of sessional care.
The private sector is therefore a key player in the UK ECEC market.

20

Sessional care is pre-school care limited to a maximum of 3.5 hours per day.

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Financing
The state offers subsidies in the form of additional tax credits for low-income parents to cover the costs of childcare and
childcare  vouchers  accessed  via  employer-administered  salary  sacrifice  schemes.  Since  2010,  there  have  been  mixed
messages from central government: there has been an expansion of free early education places for disadvantaged two-
year-olds, but at the same time there has been a reduction in the childcare element of working tax credits. The policy
expert argued that while tax credits were important for some parents (particularly single parents), at present the childcare
voucher scheme has faults. It is poorly targeted (all parents are entitled to them regardless of earnings) and limited in
scope, as not all employers offer them, not all providers accept them, and at most they would reduce bills by GBP 1,000
(€1,406) per year (although this is due to increase in 2015 to a maximum of GBP 2,000 (€2,812)).21 Average occupancy
rates for places for those aged 0–4 years in day nurseries are broadly stable at around 75% (just above break-even), but
this is largely driven by children accessing free early education places rather than privately paid-for childcare (NDNA,
2014). In London and the south-east of the country, some providers are losing on average GBP 900 (€1,265) per child
per year enrolled for a free early education place, meaning that the cost is increasingly transferred onto childcare fees
for non-funded hours.

Implementation and management
Fundamentally,  the  Department  for  Education  sees  a  much  reduced  role  for  local  authorities  in  shaping  the  range,
accessibility and affordability of private and independent provision. Market forces should clearly be allowed to operate
unfettered: ‘Local authorities should not intervene in providers’ private businesses outside of a child’s early education
place’ (Department for Education, 2013, p. 4).

The role of the state therefore is to offer a light-touch form of market management that:

n

n

ensures sufficient childcare places for children of working parents;

secures free early education places for eligible children aged two, three and four years;

n provides information to parents.

According to the local authority interviewed for this case study, which wished to remain anonymous, there was a delicate
balance to be found between the stimulation of supply and demand within the market. Historically, many parents relied
on  informal  childcare,  but  the  ambition  to  raise  educational  attainment  made  the  expansion  of  high-quality  and
affordable  childcare  a  priority.  Providers  in  this  authority  area  received  comparatively  high  rates  for  funded  early
education places (higher than the regional average), meaning that financial viability was not as much of a problem as it
was in the south-east region. 

Case study 3: Adult social care

Background and objectives
Services such as residential and nursing home care (short-term, long-term and palliative) and domiciliary care services
in the client’s own home are core functions of local authorities, making up around GBP 19 billion (€27 billion) of annual
spending. Many services and premises were transferred out of direct local authority control during the 1990s and 2000s,
as  comparatively  generous  pay  and  conditions  made  in-house  services  increasingly  uncompetitive.  As  of  2010,  the
proportion of residential and nursing home placements in the independent sector stood at 90%, the vast majority of which
is supplied by private for-profit providers (Forder and Allan, 2011).

21

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This is based on earnings and the value of vouchers purchased.

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Delivering public services: A greater role for the private sector?

Financing
Local authorities fund 52% of placements in independent sector residential and nursing homes, whereas the NHS funds
just  8%,  with  self-funding  making  up  the  remaining  40%.  Although  fees  can  vary  significantly  by  provider  and
geographical  area,  average  weekly  rates  have  increased  in  real  terms  by  around  70%  since  1998  (Forder  and Allan,
2011). Residential care can cost close to GBP 1,000 (€1,406) per week, and the cap on care fee contributions is being
increased from GBP 35,000 (€49,178) to GBP 72,000 (€101,160) in 2016 (excluding any charges for food and general
accommodation),  meaning  that  individuals  may  still  be  liable  for  significant  expenses  (Age  UK,  2014).  It  has  been
estimated  that  the  minimum  hourly  rate  needed  to  provide  good-quality  domiciliary  care  with  allowances  for  staff
training travel time is GBP 15.19 (€21.34). However, less than 5% of local authorities are thought to pay this amount,
with the average at just over GBP 12 (€16.86) per hour (BBC News, 2015b). 

Implementation and management
The local authority in this case study provides the majority of intermediate care (support for those with short-term care
requirements  and  those  leaving  hospital),  but  there  was  no  particular  commitment  to  an  in-house  model  of  service
delivery. This was reflected in the decision to outsource all care homes in the early 2000s, along with the majority of
home-care services. Although the private and not-for-profit market provides the bulk of residential, day-care and home-
care services, the local authority is committed to a fully qualified social work function that oversees care packages and
safeguarding issues. The only area where there is a lack of capacity in the private market is the provision of specialist
services for clients with learning difficulties, but at the time of interview, discussions were under way to stimulate the
market: the remaining in-house services were due to be put out to tender within the next 12 months and staff would
transfer to the successful bidder. 

Outcomes

Case study 1: Employment and training for job-seekers

Access-related outcomes

Nearly 1.5 million people have joined the Work Programme in the past two and a-half years, and around 17.5% of these
have  found  sustained  employment  (IPPR,  2014).  It  was  the  view  of  the  policy  expert  that  the  private  sector  copes
reasonably well with routine job searches and support packages for clients who are ‘work-ready’, but adequate resources
were not available to support job-seekers with more complex requirements, such as drug and alcohol treatment, mental
health problems or offending behaviour (which job centres were better equipped to deal with). It was recognised that
there have been some improvements in the aggregate number of successful job outcomes, but these are generally in the
groups closer to the labour market, and the proportion of clients securing sustained work within 12 months of entering
the  programme  is  now  falling.  The  payment-by-results  system  for  the  Work  Programme  was  thought  to  encourage
contractors to prioritise ‘work-ready’ clients for acceptance onto the programme, thereby inflating successful outcomes
and filtering out those with greater support needs, who may not be able to access the services they require.

Quality-related outcomes

From the contractor’s perspective, the upturn in the labour market over the last 12–18 months meant a decline in the
number of new referrals from the job centre (as clients with relatively minimal support needs were finding work quicker)
and an increase in the proportion of clients with complex requirements. Each contractor has its own ‘supply chain’ and
works with specialist providers and a range of not-for-profit organisations to meet the specific needs of clients. This
could be to provide basic skills training (literacy, numeracy or ICT), as well as vocational skills courses (for example,
catering and book-keeping). In terms of managing clients, the contractor has some discretion when agreeing a package
of support for clients, but if the client does not engage with services, the contractor is obliged to notify the DWP of a
breach in the relationship, following which welfare sanctions are applied. The contractor interviewed for this case study

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Delivering public services: A greater role for the private sector?

argued that the payment-by-results system was effective, as payments for new referrals had decreased over time, and the
contractor’s income was now primarily determined by the achievement of sustained work outcomes (payments increase
at three and six months). In order to keep the contract viable, it was in the interests of the contractor to build clients’
skills and find them suitable, long-term work, although no aggregate data are available about the type or quality of the
employment obtained, or the match with a client’s skill set and interests.

Effectiveness-related outcomes

From the perspective of staff and volunteers at a job club interviewed for this case study, there was a mismatch between
the skills and experiences of job-seekers and the jobs on offer. It was argued that job-seekers were being channelled
towards entry-level jobs (low-paid and temporary work with limited prospects), irrespective of their work history or skill
set. This meant that experienced and knowledgeable workers had to start their careers all over again, with no real career
pathway owing to their age. The competition from younger workers (university graduates and school leavers) meant that
employers were able to pick the most highly qualified candidates regardless of the demands of the job, and the incentives
to take on younger workers (for example, through apprenticeships) disadvantaged older workers with non-linear work
histories.

The  pressure  to  apply  for  and  obtain  work  was  an  ever-present  concern  for  job-seekers  themselves. The  ‘work  first’
approach meant that the main priority was finding work through job searches, completing applications and engaging with
employers. Job-seekers reported significant pressures to apply for all the jobs that were available (up to 25 applications
per week for one client). This in turn led to a lack of time to engage in training, development and confidence-building,
which they felt could make employment more sustainable in the long term. A number suggested that contractors pushed
them to apply for jobs before they were ready, which could jeopardise their chances of sustaining the job and make them
more  likely  to  pass  through  the  programme  again  in  the  future.  The  contrast  between  the  interaction  with  staff  and
services at the prime private sector contractor and that with staff and services at the not-for-profit job club was clear: one
client  reported  feeling  ‘like  a  number’  when  attending  appointments  at  the  private  sector  contractor  and  that  the
interaction with individual staff members there was cold and impersonal. 

Case study 2: ECEC

Access-related outcomes

According to both the advice and guidance specialist at the local authority and the national policy expert, the cost of
childcare was consistently identified by parents as a barrier to accessing good-quality formal childcare: a family with
two children in full-time care could spend up to GBP 11,000 (€15,466) per year (higher than the annual average cost of
a house mortgage). This in turn was a barrier to labour market participation, particularly for those with limited access to
informal  care.  According  to  local  authority  representatives  interviewed,  an  increasing  awareness  of  the  free  early
education programme along with the financial support available (for example, tax credits and childcare vouchers) had
made formal childcare more affordable, and as a consequence, the uptake of subsidised places had steadily increased.
The increased uptake by parents does not represent an increase in places, however. 

Quality-related outcomes

According to the local authority, the market for childcare in non-deprived areas had always been broadly self-regulating
in  that  competition  between  providers  stabilised  cost  and  quality,  and  there  was  a  high  degree  of  parental  choice.
However, in deprived areas, capacity, quality and choice were all problematic: some areas might be limited to one or two
providers,  and  the  lack  of  competition  meant  that  quality  was  adequate  but  no  more. The  provider  interviewed  here
prioritised professional development and formal qualifications for staff, with a number having reached degree-level early
years professional status. This commitment to staff was reflected in low levels of turnover, with some staff having been
in the post for 10 years or more.

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The provider has several sites across a number of local authority areas and had been able to expand on the back of a good
reputation  and  positive  quality  ratings  from  the  independent  education  inspectorate  (Ofsted).  The  take-up  of  early
education places varied between areas, which, when combined with new entrants to the market, had made some locations
less profitable than others. Although the provider could afford to cross-subsidise, this would be much more challenging
for small providers with only one location and a narrow range of activities. Childcare is not a high-paying sector, and
the provider noted that staffing issues such as recruitment and retention are generally managed through good human
resources practices such as training and development. The local council had historically been heavily involved in quality
initiatives and staff training, but this was now generally left to the discretion of individual providers. 

Effectiveness-related outcomes

The  policy  expert  argued  that  in  her  opinion  there  was  a  clear  link  between  the  quality  of  ECEC  provision  and
educational  attainment  outcomes.  However,  in  contrast  with  the  statutory  education  sector,  the  low  degree  of
professionalisation of childcare careers reinforced the pattern of low wages and underinvestment in staff training. It was
also argued that while a market-based model might work reasonably well for higher-income parents, choice, quality and
effectiveness in more deprived areas were poor, an issue that was compounded by the ‘colonisation’ of universal services
such as children’s centres by higher-earning parents. Geographical disparities in a relatively unregulated market only
served to reinforce the gap between good-quality and poor-quality care, and with limited choice, parents may be forced
to rely on informal childcare, with the attendant risks of poor learning and development outcomes. 

Case study 3: Adult social care

Access-related outcomes

Eligibility  criteria  for  all  state-provided  and  subsidised  care  are  generally  determined  by  local  authorities  as
commissioning bodies (rather than individual providers). There is evidence that local councils are restricting access to
care to the highest levels of need, such as those who cannot perform any vital personal care tasks. This means that many
clients who need help with routine tasks such as washing and dressing pay for all of their care (Fernández et al, 2013).
Under the financial pressures of austerity policies, discussions within the local authority focused on eligibility, service
standards  and  quality.  An  ageing  population  means  that  demand  management  strategies  have  become  increasingly
important  to  divert  people  away  from  hospital  admissions  and  local  authority  care  services  (particularly  residential
stays).  This  includes  more  integrated  working  with  health  services,  assertive  in-reach  work  to  agree  lower-level
interventions in the client’s own home, and a restriction on eligibility criteria for some services. Historically, there has
been broad commitment to a ‘platinum’ standard of service, but under continued budget pressures, it was suggested that
this would be revised down to a ‘bronze’ standard.

Quality-related outcomes

Recent data suggest that one in five care homes are failing to meet minimum care standards set by the Care Quality
Commission, the UK’s statutory regulator of care, but there is currently little in the way of systematic analysis of the
effect of private sector provision on the quality of care provided (BBC News, 2015a). A combination of falling hourly
rates (in real terms) along with the heavy reliance on contracted services means that issues of quality often fall into the
gap between the responsibility of the state as a commissioning body and that of providers contracted to deliver an agreed
volume of care at a specific price point. According to a local UNISON official, the lower pay and poorer conditions in
the private sector offer significant cost savings to local authorities, which, when combined with a squeeze on contract
costs, disincentivises the enforcement of higher-quality standards throughout the supply chain. Although companies had
initially  absorbed  declining  margins,  it  had  reached  the  stage  where  some  providers  were  no  longer  willing  to  take
council-funded clients on the basis of low profitability. Pay rates for care staff in private sector firms in the local area
were reasonably good compared with regional and national averages, but the volatility created by local authority budget
cuts and an increasingly crowded marketplace perhaps contributed to comparatively high sickness and turnover rates. 

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Continued cuts to social care budgets appear to be creating significant recruitment and retention problems across the
sector, which is compromising the ability of the market to meet the ever-growing demand for services (Community Care,
2015).22 The home-care provider stressed that investment in the workforce was important to create better standards of
care, and consequently it had ensured that: 

n

n

rates of pay were competitive for the local area; 

a training and development programme was in place; 

n management had signed a single recognition deal with a local branch of UNISON. 

The  provider  had  also  adopted  various  ‘ethical  care’  standards,  including  30-minute  minimum  visits  (instead  of  the
15-minute visits favoured by many local authorities and private sector firms to reduce costs); payment for travel time
and expenses; and the use of guaranteed hours contracts for staff. It was felt that all of these measures had helped to keep
staff turnover low and quality high. 

According to the provider interviewed, the switch from large local authority ‘block’ contracts to personalised budgets
has introduced new dynamics to the market. In addition, traditional contracting has been replaced by a system of smaller-
scale ‘brokerage’, where the local authority designs packages of care for individual clients. While standard contracts
brought stability in terms of volume, working more closely with brokers creates the opportunity to emphasise the quality
of care rather than just the lowest price. Competition in the market is becoming increasingly cut-throat as national chains
can afford to outbid smaller providers as a result of cross-subsidisation, but word of mouth is still an important driver of
new business, based on positive user feedback and a good reputation. With margins tight, the provider suggested that if
hourly fees paid by local authorities were squeezed further, they would rather see the company ‘go under’ than offer a
poor-quality service. 

Effectiveness-related outcomes

Interestingly,  despite  cost  pressures  across  the  sector,  service  user  feedback  gathered  by  the  Health  and  Social  Care
Information Centre suggests that overall satisfaction levels are high (HSCIC, 2014). In the 2013–2014 survey, close to
90%  of  service  users  reported  that  they  were  satisfied  with  the  care  services  they  received  (delivered  by  the  local
authority directly or under contract by the private sector). Users of residential home care (with no nursing facilities) and
nursing  home  care  (with  trained  nursing  staff  for  those  with  recognised  medical  requirements)  were  slightly  more
satisfied with the care they received than users of home-care services (95%, 92% and 90% respectively). At the local
authority,  satisfaction  levels  in  2013–2014  were  higher  than  average  and  had  shown  improvement  since  2010–2011
(HSCIC, 2012; 2014). With regard to paid care from the private and independent sector, a slightly higher proportion of
respondents reported paying for some or all of their care than the national average (over 40% compared with an average
of 38% for England). However, the local authority still brokers care packages on behalf of many clients in receipt of
direct funding, which lowers the risk of using poor-quality providers.

22

58

In 2009–2010, there were already severe problems regarding recruitment and retention in adult social care private sector providers,
with turnover rates of 31%; 69% recorded staff shortages to cover unsocial and weekend hours (Rubery et al, 2015). This was
before further rounds of budget cuts, which have tightened commissioning conditions. 

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Delivering public services: A greater role for the private sector?

Conclusions

In  respect  of  the  Work  Programme,  there  appear  to  be  problems  with  performance  management.  This  means  that  in
addition to difficulties tracking aggregate outcomes, the structure of the payment-by-results system does not do enough
to address the poor outcomes of specific contractors or for specific groups with more complex needs. There are still
question marks over the ‘work first’ model, which places total emphasis on job searches and not enough on the quality
and  sustainability  of  employment  outcomes.  Employment  outcomes  could  be  better  achieved  through  tailored  and
intensive  programmes  of  skills  training  and  confidence-building.  Central  government  appears  willing  to  accept  the
modest outcomes of what is a comparatively cheap programme (IPPR, 2014).

In the ECEC sector, there are relatively few direct market controls, which is reflected in differential patterns of access,
affordability and quality of provision reported by the policy expert. A market model may deliver choice for better-off
families, but there is significant evidence of limited local competition between providers in deprived areas, which can
reduce standards and inflate costs. The rollout of the early education pilot for two-year-old children appears to be having
an impact on the take-up of places by deprived families, but informal childcare remains important for many low-income
families.

In the adult social care sector, there is evidence of innovation in demand management and partnership working, but cost
is a dominant concern, and the sustainability of the current model is highly questionable. There is something of a paradox
in this sector, in that problems of cost, quality and accessibility are often raised by service users and their families but
overall satisfaction levels are consistently high. Where providers are willing to invest in the workforce, staff retention,
morale  and  productivity  can  increase,  but  the  contracting  approach  of  local  authorities  can  reduce  the  scope  for
progressive human resources management strategies.

Future  research  in  this  area  needs  to  take  account  of  the  growing  complexity  of  contracting  arrangements  in  public
services, particularly where partnership-based, mutual and cooperative structures are developed with a range for-profit
and non-profit organisations. The implications of these partnerships and joint ventures are often poorly understood at the
design stage, and the withdrawal of private sector firms from large contracts in healthcare and local authority services
often leaves the public sector highly exposed to financial and operational risks (The Guardian, 2015).

Generally speaking, it is not the involvement of the private sector that is creating many of the problems reported here.
Rather, it is a combination of policy, market management and funding pressures, which appear to create pervasive issues
with cost, accessibility and quality. The following problems were identified:

1. a general lack of funds for high-quality provision and investment in the workforce, leading to a downward spiral of

cost-cutting and low employment standards;

2.

limited regulatory powers for state agencies to correct for market failure, to promote choice and drive up quality;

3. skewed performance management systems that do not represent the interests of the most disadvantaged and excluded

groups.

Large-scale privatisation policies such as the Work Programme formulated at ministerial level and effectively imposed
on state agencies appear to create the greatest rigidities in respect of implementing, running and monitoring services.
High-volume contracts combined with weak performance management of large private sector providers are in danger of
effectively replacing one form of producer-driven monopoly with another. In contrast, where funding and quality control
is devolved to a local authority level (as is the case in childcare and adult care to an extent), there appears to be greater
scope  for  public  servants  to  innovate  and  manage  standards  effectively  using  local  knowledge  of  both  supply  and
demand. 

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Sources

Age UK (2014), Care in crisis – What’s next for social care?, Age UK, London.

BBC News (2015a), ‘One in five care homes “failing standards”’, 8 February, available at
http://www.bbc.com/news/health-31173451.

BBC News, (2015b), ‘Councils in England “pay too little for home care”’, 2 April, available at
http://www.bbc.co.uk/news/uk-26021026. 

Community Care (2015), ‘Social workers forced to cut care packages as £1bn wiped off social care budgets’, 4 June,
available at 
http://www.communitycare.co.uk/2015/06/04/pressure-social-workers-cut-care-packages-1bn-wiped-social-care-
budgets/.

Department for Education (2013), Consultation on proposed changes to the role of the local authority in early education
and childcare, London.

Escott, K. and Whitfield, D. (1995), The gender impact of CCT in local government, EOC Research Discussion Series
No. 12, Equal Opportunities Commission, Manchester.

European Commission (2015), Country report United Kingdom 2015 including an in-depth review on the prevention and
correction of macroeconomic imbalances, Commission Staff Working Document, SWD (2015) 47 final, Brussels.

Fernández, J. L., Snell, T., Forder, J. and Wittenberg, R. (2013), Implications of setting eligibility criteria for adult social
care services in England at moderate needs level, PSSRU Discussion Paper DP2851, PSSRU and London School of
Economics and Political Science, London.

Forder, J. E. and Allan, S. (2011), Competition in the care homes market, OHE Commission on Competition in the NHS. 

Grimshaw, D. (2012), ‘Austerity, privatization and levelling down: Public sector reforms in the United Kingdom’, in
Vaughan-Whitehead,  D.  (ed.),  Public  Sector  Shock,  Edward  Elgar,  Cheltenham  (in  association  with  ILO,  Geneva),
pp. 576–626.

The Guardian (2011), ‘Southern Cross care homes: Get the list’, 14 November, available at
http://www.theguardian.com/news/datablog/2011/aug/31/southern-cross-homes-list.

The Guardian (2014), ‘Atos quits £500m work capability assessment contract early’, 27 March, available at
http://www.theguardian.com/society/2014/mar/27/atos-quite-work-capability-assessment-contract-early. 

The Guardian (2015), ‘Circle in talks to exit private contract to run Hinchingbrooke hospital’, 9 January, available at
http://www.theguardian.com/society/2015/jan/09/circle-exit-private-contract-hinchingbrooke-nhs. 

Halford,  R.  (1982),  ‘Local  authority  contracting‐out  –  The  implications  for  employees’  pay  and  conditions’,  Local
Government Studies, Vol. 8, No. 5, pp. 1–9. 

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HM Government Cabinet Office (2011), Open public services – White paper, HM Government, London. 

HSCIC  (Health  and  Social  Care  Information  Centre)  (2012),  Personal  Social  Services  Adult  Social  Care  Survey:
England 2010–11. 

HSCIC (2014), Personal Social Services Adult Social Care Survey: England 2013–14, Final release. 

IPPR  (Institute  for  Public  Policy  Research)  (2014),  Alright  for  some?  Fixing  the  work  programme  locally,  IPPR,
Newcastle upon Tyne, UK.

LGA (Local Government Association) (2014), National Procurement Strategy for Local Government in England 2014,
LGA, London. 

NAO (National Audit Office) (2013), The role of major contractors in the delivery of public services, Stationery Office,
London.

NDNA (National Day Nurseries Association) (2014), UK nursery insight report February 2014, NDNA, Huddersfield,
UK.

Rubery,  J.,  Grimshaw,  D.,  Hebson,  G.  and  Ugarte,  S.  (2015),  ‘“It’s  all  about  time”:  Time  as  contested  terrain  in  the
management and experience of domiciliary care work in England’, Human Resource Management (early view).

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Main findings

6

Reliance on private sector for public service provision

Key  finding:  Case  study  Member  States  are  increasingly  relying  on  the  private  sector  for  the  provision  of  public
services.

In all case study countries, the private sector has played an increasingly important role in the provision of SSGIs. This
process started as far back as the 1980s in Sweden and the UK and, to a lesser extent, in Spain. Lithuania has seen an
increase in the marketisation of service provision since the 1990s. Over the past decade, the role of the private sector in
the provision of SSGIs has expanded further in all four countries, as evidenced by a growing ratio of users and staff in
private versus public providers in the selected sectors. In Sweden, private providers (including non-profit organisations)
employ around 20% of staff in different SSGI sectors. In all countries, such developments were stimulated by legislative
adjustments at sector level, explaining considerable variation in the prevalence of private provision across sectors. In the
UK, perhaps reflecting that country’s long-established market model of public service delivery, there is some evidence
of a return to public ownership, where contracts in the private sector have proved to be more expensive and less effective
than  anticipated.  Insourcing  exercises  in  local  government  suggest  that  risk  management  is  better  controlled  through
direct ownership, along with lower administrative costs once legal and contract management resources are accounted for.

With regard to the capacity in which the private sector is engaged, in all sectors examined, the private sector role was
mostly in delivery and, to a lesser extent, financing (see the section on the public and private financing of SSGI services
in this chapter); involvement in management was even less common. The Spanish healthcare case study focused on a
PPP in tertiary healthcare, where the private sector had a role in all three levels – from raising capital to delivery and
management.  In  the  UK,  perhaps  mainly  due  to  the  specific  sectors  in  the  UK  cases,  there  are  examples  of  private
providers managing facilities in health and compulsory education. 

Active role for the private sector

Key finding: The private sector is active in the provision of services across all SSGI sectors.

The case study sectors were selected based on the extent to which they have been affected by a greater private sector
role: the four chosen were those most affected by this trend in the countries analysed. 

Employment services 
Employment  services  were  analysed  in  Lithuania,  Sweden  and  the  UK,  all  three  of  which  have  seen  a  particularly
marked  increase  in  private  provision.  For  example,  in  Sweden,  from  2009  to  2013  the  number  of  private  providers
increased from 30 to 112, with a corresponding increase in users of private provision from 15,000 in 2009 to 121,000 in
2012. In Spain, although employment services were not among the case study sectors for this country, private provision
began as far back as 1993 and the market was liberalised in 2010. 

Elder care 
This category of care, which includes services such as residential care, home help and telecare, was studied in Spain,
Sweden and the UK. It has also been substantially affected by the trend towards a greater role for the private sector. In
Spain, as of 2010, private employment in this sector reached close to 80%, while in the UK, 90% of residential and
nursing home placements are provided by the private sector. 

Healthcare
Healthcare was analysed in Lithuania (primary and secondary care) and Spain (primary and tertiary care). In Lithuania,
following the 1990s, entire sectors of healthcare, such as dentistry and pharmaceuticals, were transferred to the private

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sector, and private provision in primary to tertiary care has been growing substantially ever since. In the Valencia region
in Spain, which has had more experience with private provision of public health services than other regions, 20% of the
population  receives  healthcare  from  providers  established  and  run  as  PPPs,  with  the  private  sector  participating  in
financing, delivery and management of these services. 

ECEC 
Private providers are playing a greater role in the provision of ECEC in Lithuania, Sweden and the UK through the use
of  education  vouchers,  which  leaves  the  choice  of  provider  up  to  the  consumer.  In  Sweden,  the  share  of  pre-school
children enrolled in private pre-schools increased from 15% in 2000 to 20% in 2013. In both Lithuania and Sweden, the
same voucher system that applies to ECEC also applies to compulsory primary education; however, while there has been
little uptake of private provision in Lithuania, the opposite is true for Sweden. 

Secondary education 
Secondary education is not included in this country study analysis, but in all four countries the role of the private sector
in this area has increased to varying degrees. In Lithuania and Sweden, the same financing rules apply to ECEC and
compulsory schools. In the UK, there has been a major increase in private sector involvement in public sector provision
through the conversion of schools to academies that are often sponsored by private organisations.23 In Spain, 28% of
compulsory  secondary  education  is  tax-financed  and  delivered  by  private  providers,  compared  to  23%  in  the  UK
(OECD, 2011a). 

Social housing  
Perhaps due to the fact that it is less labour intensive than other SSGIs, social housing has been the least affected by a
greater private sector role. It was not included in any of the country case studies. 

Key drivers behind increased role of the private sector

Key finding: Key drivers behind the increased role of the private sector include the aim for greater efficiency and the
inadequate supply of public services. 

The main driver behind the increased role of the private sector has been the desire for increased efficiency and quality,
both in SSGIs in general as well as specific SSGI sectors. This goal has usually been addressed by increasing competition
in the provision of services. The main means to achieve this end in the case study countries has been a shift away from
centralised bodies being direct providers of services to a situation where they are funders and regulators between the
users and providers, which can be either public or private. In most cases, competition has become predicated on user
choice. In all countries, these shifts came with a mix of ideological intentions (a key driver in Spain) and cost-saving
intentions (a key driver in the UK). In some cases, most markedly in Spain and Sweden, the greater role for private
provision  was  expected  to  modernise  the  relevant  sectors,  through  a  corresponding  investment  in  infrastructure.  For
Lithuania,  to  some  extent,  membership  of  the  EU  was  a  driver  for  fostering  competition  and,  in  turn,  quality  in  the
provision of SSGIs. 

23

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In the UK, the conversion of (usually failing) schools to academies takes them outside of direct local authority control and gives
greater scope for private sector involvement in the form of ‘sponsorship’. Data published by the Department for Education suggest
that about one-half of all the 3,000 academy schools in England and Wales are sponsored by a mixture of private sector businesses,
private sector academy school chains (often based in the US), and charitable trusts and not-for-profit organisations. The number of
sponsored academies opening each year jumped from less than 100 in 2011–2012 to over 300 each year since then.

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Employment services 
In the three employment sector case studies – in Lithuania, Sweden and the UK – the role of central government agencies
has been transformed from providing training support and job-matching services to unemployed people to becoming the
first point of contact that connects users with private providers of employment services. A common rationale behind
decentralisation  and  increased  competition  is  to  increase  productivity  and  efficiency  in  both  public  and  private
providers.24 While in the UK the main driver was to cut costs (welfare benefits as well as operational costs), in Lithuania
and  Sweden  employment  services  were  decentralised  in  order  to  better  match  labour  market  demand  and  supply.  In
Sweden,  the  efficiency  of  matching  people  to  jobs  was  meant  to  increase  with  improved  technology  and  more
personalised services that private providers are better equipped to deliver, while in Lithuania it was enforced by making
training contingent on a future employment contract. 

Elder care 
With ageing populations across the EU, one common driver is an increased need for elder care (both residential and
home  care),  and  governments  are  looking  for  new  solutions.  In  Spain,  the  growing  demand  led  the  government  to
consolidate elder care services and make them universal. As the move happened in 2006, on the eve of the economic
crisis,  the  government  subsequently  reduced  benefits  or  services  provided  both  by  the  public  sector  and  the  private
sector, and introduced or increased co-payments. As a result, families rely more on their own resources to care for older
relatives. As the Madrid case study illustrates, the ‘universality’ of elder care was reversed by the increase in the co-
payment rate required of users between 2009 and 2013, which rose from 10% to 34% of the real cost of services. In
Sweden, there has been a shift away from residential care towards home care, reflected in an increase in both public and
private home-care provision. This has been driven by both the motive of lower cost and user preference.

Healthcare 
In Spain, PPPs were introduced in healthcare for ideological and cost-saving purposes, as well as the hope that private
provision would help modernise management and produce innovation. In Lithuania, private sector participation in the
delivery of healthcare services was not top-down, involving regulations to encourage private providers, but bottom–up,
driven by a mix of insufficient capacity and inadequate quality in public provision. 

ECEC 
Across the four countries studied here, various drivers explain the increasing role of private providers in the delivery of
ECEC services. In Lithuania, increasing birth rates and population growth in cities without strategic planning to increase
the  capacity  of  the  public  ECEC  infrastructure,  as  well  as  rising  demand  for  high-quality  childcare,  left  public
kindergartens unable to meet demand. In the UK, private provision of ECEC services is in line with the overall ambition
to augment welfare provision using private services. In Sweden, the ‘school market’, including ECEC and secondary
education,  has  been  experiencing  steady  decentralisation  and  increasing  competition  since  the  1990s,  with  choice  of
school being left up to the end users – the families. 

24

Spain is one example where, as described earlier, decentralisation and the new public management reforms led to a bigger role of
the private sector in some regions.

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Impact of the economic crisis

Key finding: The role of the private sector in the provision of SSGIs grew during the economic crisis, but not necessarily
because of it.

One of the criteria in selecting countries for this study was to include countries that were affected by the economic crisis
in  different  ways.  Government  debt  and  budgetary  concerns  were  more  prevalent  in  Lithuania,  Spain  and  the  UK
(although  privatisation  preceded  the  cuts  here)  than  they  were  in  Sweden.  That  said,  the  effect  of  the  crisis  on  the
public–private dynamic in the provision of SSGIs also varied considerably across sectors within the same countries. It
is impossible to discern the effect of the crisis in the context of an already changing relationship between the public and
private sectors in the provision of public services, but certain changes are relevant.

In  Lithuania,  the  impact  of  the  crisis  varied  by  SSGI  sector.  In  employment  policy,  the  lack  of  effectiveness  of  the
training for unemployed people provided by public providers during the crisis played a role in the move towards opening
competition to private providers. In healthcare and ECEC, private providers had to increasingly rely on public users, as
fewer people were able to afford the more expensive private services, especially in the wake of the crisis. 

Of the four countries, the crisis hit Spain most severely, and some services that were previously provided by the state
had to be retrenched, as was the case with long-term care. For users, this meant the introduction of co-payments for
services  and  restricted  eligibility  criteria  for  access  to  them.  The  most  immediate  effect  this  had  on  the  dynamic  of
public–private provision was that a much heavier emphasis was placed on price rather than on quality in the procurement
process  for  public  service  providers.  This  pushed  experienced  yet  small  non-profit  providers  out  of  the  market  and
attracted well-established, large companies. This was the case for all sectors studied in Spain – home help, elder care and
healthcare. 

In the UK, it is difficult to distinguish between changes that happened as a result of the crisis and those that related to a
long-standing  tradition  of  decentralising  provision  of  services  and  prioritising  economy  and  efficiency  over  quality.
During  the  economic  crisis,  the  government  accelerated  programmes  of  privatisation  and  drove  down  spending  on
existing contracts (particularly in adult social care). A worrying proportion of care provision does not meet the minimum
quality standards set by statutory regulators, but this appears to be driven as much by the squeeze on local authority care
budgets as the significant involvement of for-profit providers of care in the market (The Guardian, 2011; 2014). Without
reliable comparative data across different local authority areas and provider types, it is difficult to draw more detailed
conclusions  about  the  ‘value  for  money’  offered  by  private  providers,  which  balance  unit  cost  against  quality  and
effectiveness measures. Despite aspirations for a stronger mixed economy with a greater role for charitable and voluntary
groups, new forms of public–private ownership through cooperative and mutual structures have so far failed to take root
in many parts of the country.

In Sweden, in the aftermath of the crisis, a dramatic rise in unemployment levels led the public employment service to
increasingly outsource placement services that were previously performed by in-house caseworkers. The increase in the
number of private placement providers was therefore principally aimed at solving a capacity problem due to the notable
increase in job-seekers per caseworker.

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Public and private financing of SSGIs 

Key finding: The financing of SSGIs by public and private agencies varies across case study countries.

As SSGI provision is either universal or at least partly compensated by the state in all case study countries, there is an
element of state funding for all private provision of SSGIs. However, the extent of this funding was found to vary across
both countries and sectors. Importantly, the mechanism for financing is regulated at sector level. The only example of
centralised regulation of financing applicable to various SSGIs was found in Sweden, where the Act on System of Choice
in the Public Sector that took effect in 2009 applies to health and social services, which include elder care. 

Employment services 
In the three countries with case studies on employment, relevant services – matching, job searches, training and coaching
–  are  fully  subsidised  by  the  government  and  free  of  charge  to  service  users.  Private  contractors  that  meet  selection
criteria  are  financed  via  work  programmes  or  public  employment  services.  In  all  three  countries,  financing  for
employment services has become based on payment for results. In Lithuania, this was ensured in 2012, when service
users became obliged to secure an employment contract with a future employer or commit to self-employment for one
year prior to entering non-formal or formal training paid for by the state and delivered by a public or private provider of
choice. In the UK, service providers receive payments contingent on new entrants to the Work Programme and on clients
sustaining employment for more than six months. In Sweden, funding to contractors depends on successful placements,
and payment is made in three stages – 40% as a job-seeker starts the programme, 30% upon signing an employment
contract of three months or longer, and 30% after the job-seeker retains employment for more than three months. 

One  marked  difference  between  countries  in  this  respect  is  the  nature  of  the  providers:  while  in  Lithuania  private
providers are small and not consolidated, in the UK large multinational firms are the main providers in this GBP 1.2
billion (€1.7 billion) per year market. 

Elder care 
Elder care and home help, studied in Spain, Sweden and the UK, are financed by a mix of public subsidies and user co-
payments.  Home-help  services  in  Spain  were  made  universal  by  the  Dependency  Act  of  2006,  which  considerably
increased the amount of public spending available for this sector and attracted companies from other sectors that at the
time  were  experiencing  considerable  loss  of  business. The  public  procurement  mechanism  applied  to  the  contracting
process, which required applicants to come up with a bid bond or guarantee of around 5% of the bid, drove some small
companies out of the market and allowed for large companies to become established as prime providers. 

User  co-payments  are  based  on  the  income  of  the  service  user  and  their  relatives  and  the  nature  of  the  service. The
principle of access for those in need is applied. In the city of Madrid, the financing of long-term care is more reliant on
user co-payments as a direct result of the economic crisis. According to some calculations, these payments represent
10%–50% of the real cost of services. In Sweden, home-care services are partly financed by municipalities and partly
by co-payments from service users in the form of monthly fees; the rates depend on household income and the extent of
home-care services being used. Finally, in the UK, the cost of the burden of care has been shifted onto service users
through  a  combination  of  increased  co-payments  at  higher  weekly  rates  (self-funding  now  accounts  for  40%  of  all
placements) along with restrictions on access to funded care based on higher eligibility criteria.

Healthcare 
Two of the country case studies looked at healthcare and different mechanisms of private–public cooperation within this
sector – primary and secondary healthcare in Lithuania and tertiary healthcare in Spain. 

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In Spain, the case study was a PPP in tertiary healthcare in the autonomous community of Valencia. Given the need for
considerable up-front capital to secure the bid to establish and run a hospital, the only eligible bidder was a consortium
comprising a large healthcare company, three regional savings banks and two construction companies. The project was
initially  to  be  financed  through  a  capitation  fee  of  €204  per  resident  per  annum  and  adjusted  annually  based  on  a
consumer prices index. This proved to be recklessly low and after a reconvened bidding process was raised to €379. 

In  Lithuania,  private  providers  are  able  to  compete  for  state-insured  clients,  which  constitute  the  majority  of  the
population. They get compensation for specific services provided as well as a fixed amount for every registered patient
and variable additional amounts in the form of bonuses based on specified services, such as disease prevention or first
diagnosis of common diseases. The compensation rates are based on the basic cost of the specified services, as calculated
by the ministry. These rates do not correspond to the actual cost of providing the service, however, which means private
providers rely on cross-subsidisation from paid services, most often dental, preventive care and innovative services not
available through public providers. 

ECEC 
Universal  ECEC  coverage  is  not  found  in  all  the  case  study  countries.  In  the  UK,  working  parents  are  eligible  for
subsidies  in  the  form  of  childcare  vouchers  accessed  through  employer-administered  salary  sacrifice  schemes.  In
addition to this, low-income parents can avail of tax credits, but together, these two sources do not cover the cost of
ECEC.  The  delivery  of  ECEC  services  in  the  UK  occurs  through  both  private  and  public  providers,  with  the  latter
prominent in the provision of full day care, which makes up over 60% of the pre-school market. In Lithuania, ECEC is
financed through vouchers, which cover a full day of care in public kindergartens or half a day of care at private ones,
and  parent  co-payments.  Due  to  cost  differences  between  private  and  public  kindergartens,  parent  co-payments  for
private kindergartens can be seven times that paid for public ones. In Sweden, childcare is subsidised to a far greater
degree. There, universality of access is ensured by co-payment ceilings set by municipal authorities based on household
income; this means that private providers cannot charge beyond those amounts. 

Results-based management

Key finding: The case studies show an emphasis on results-based management of private provision of public services. 

Employment services 
In  the  UK,  the  DWP  is  the  contracting  authority  for  providers  of  employment  services.  It  has  few  controls  over  the
providers  besides  payment  for  results,  as  discussed  under  the  financing  section.  The  payment-by-results  system  is
intended  to  incentivise  quality.  In  Lithuania,  a  potential  service  user’s  eligibility  for  training  is  contingent  on  their
securing a future employment contract. A formal assessment of the quality of formal training programmes is conducted.
The provision of non-formal training – training not accredited by the Ministry of Education and not providing formal
qualifications  –  has,  in  essence,  been  opened  up  to  any  willing  provider;  the  only  control  mechanism  is  approval  of
regional social partners. In either case (formal or non-formal training), only those who are guaranteed to be employed
for  at  least  six  months  after  the  training  are  eligible. This  means  they  have  to  sign  an  agreement  with  the  would-be
employer before availing of the training.

The  Swedish  public  employment  service  applies  the  LOV  Act,  allowing  job-seekers  registered  with  the  public
employment  service  to  choose  from  a  list  of  private  providers.  These  private  providers  are  selected  by  the  public
employment service based on competence and experience of the company in job placement. 

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Elder care 
In Sweden, the procurement selection criteria for private providers are set by elected local politicians. In the municipality
of Växjö, the criteria are based solely on the quality of the service, with the price having no weight in the equation. The
municipality  conducts  follow-up  surveys  and  evaluations  each  year  to  check  whether  quality  requirements  and
regulations are being respected by the private provider of home-care services. The municipality also conducts a yearly
follow-up  opinion  survey  among  the  customers  of  both  municipal  and  private  home  care  to  ensure  that  the  quality
standards of the service provided are being upheld.

In Spain, home-help providers are selected through a procurement process that, following cases of corruption, demands
anonymity of the tendering companies. This is supposed to help those involved in choosing the winning bid to ensure
that the most suitable provider is selected. In the UK, independent organisations inspect how long-term care providers
adhere to quality standards, but local authorities as commissioners are free to set their own quality criteria. This results
in varying levels of commitment to quality over cost.

Healthcare 
In  Lithuania,  private  providers  of  healthcare  emerged  organically;  a  mechanism  for  compensating  them  for  treating
insured patients was developed at a later stage. For this reason, there is no top-down procurement process. For the private
provider interviewed in this case study, the public subsidies for primary and secondary healthcare services covered only
20% of the cost of providing these services. Moreover, these subsidies come with requirements, including audits by local
authorities  and  the  National  Health  Insurance  Fund  authorities,  renewable  annual  contracts  with  the  National  Health
Insurance Fund, and a licence from the State Health Care Accreditation Agency, among others. 

In the case of the PPP hospital in Spain, a private company in a joint venture constructed a hospital and was in charge
of  its  management.  This  was  one  of  the  first  cases  in  Europe  where  clinical  services  have  been  included  in  the
concession,  initially  signed  in  1999  for  a  10-year  period. The  contract  was  terminated  early  and  the  bidding  process
reconvened (see the Spain healthcare case study for details). 

ECEC 
In all three case study countries, vouchers enable users to opt for private providers. In Sweden, a centralised state agency,
the Skolinspektion, is in charge of the accreditation of private schools. By contrast, in Lithuania, all private kindergartens
and schools operate on a purely private basis – they do not have to get certified as an eligible provider, although they do
get partial compensation per child through the state if they meet hygiene and organisational requirements. In Sweden,
the  Skolinspektion  also  conducts  follow-up  and  evaluation  surveys  on  a  variety  of  topics  including  the  quality  of
education, school environment and educational achievement, whereas in Lithuania there is no centralised supervision of
private providers. 

In the UK, the Department for Education sees a much reduced role for local authorities in shaping the range, accessibility
and  affordability  of  private  and  independent  provision  and  is  in  favour  of  unfettered  operation  of  market  forces
(Department  for  Education,  2013).  The  state  role  is  reduced  to  securing  sufficient  childcare  places  for  children  of
working parents, securing free early education places for eligible children aged 2–4 years, and ensuring that information
is provided to parents. In the local authority examined in this case study, comparatively high payments were made for
early education places, which meant that services were financially viable; this is not the case for other local authority
regions in the UK, such as the south-east. 

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Outcomes, access and quality

Key finding: Access, in some cases, but not always, becomes a trade-off for quality of services.

There is tension between the European welfare model of universal public services and the capacity of governments to
ensure  equitable  access  for  all,  be  it  through  solely  public  provision  or  with  different  mixes  of  public  and  private
delivery. To a greater or lesser extent, in all case study countries, the private sector has been engaged to ensure sufficient
provision of certain services. With the exception of ECEC in Sweden and employment services in Lithuania, Sweden
and the UK, private provision across countries and sectors is associated with some degree of co-payment. In the UK,
which has a longer tradition of marketisation of public services, co-payments now make up around 40% of all elder care
costs. In Spain, elder care clients have to rely increasingly on private provision of services and, by extension, on the
market; the same is the case in Lithuania for both ECEC and healthcare. In Spain, the introduction of larger co-payments
for elder care caused some users to give up using services. In Lithuania, private providers are almost without exception
more  expensive  than  public  ones,  but  users  are  either  forced  to  turn  to  private  provision  where  public  provision  has
insufficient capacity to meet needs, for example in ECEC, or because of longer waiting times in public providers, for
example in healthcare. 

Some services, for example employment training and job placement, are universal and free of charge across the board,
perhaps due to their nature and their importance to the functioning of the economies concerned. Regarding services that
are  not  universally  free,  at  least  some  sectors  across  all  the  case  study  countries  show  evidence  of  the  state  cross-
subsidisation for those with the highest level of need. For example, in the UK, ECEC is partly subsidised for working
parents, with additional funding available to low-income parents. 

A key issue in access is that while increased private provision may help in meeting newly emerging needs by means of
avoiding even longer waiting lists, access to the providers themselves is not necessarily equitable. Private providers of
ECEC in Lithuania and Sweden enrol more children of well-off families than low-income families. While in Lithuania
this can be explained by the need for significantly higher co-payments, in Sweden it is more a result of more affluent
parents choosing private education for their children. Most of the case studies have also illustrated that co-payment rates
vary considerably from provider to provider, meaning public services are failing to be equitable. Some regions or even
neighbourhoods may be more affected than others. 

In  terms  of  access  for  disadvantaged  groups,  in  some  case  study  sectors,  such  as  ECEC  in  Lithuania,  interviewees
suggested  that  public  providers  were  better  able  to  support  clients  with  additional  needs.  In  the  case  of  employment
services in Sweden and the UK, the public sector was better placed to support those with addiction problems (Sweden)
or a background of offending behaviour and mental illness (UK). 

There is also evidence of access being reduced by higher costs associated with the service in question – for example,
users of the PPP hospital in Spain complained about the high cost of parking. Another aspect of access is working time.
In the healthcare sector in Lithuania, there is evidence that privately operated MRI diagnostic centres that operate under
service agreements within public hospitals work outside of hospital working hours. This allows them to make maximum
use of their equipment, ensuring profitability; it also increases access for patients, including public patients.

Private providers are not always expected to fill gaps in the provision of public services. Access can be viewed not only
in terms of service users’ access to the service but also in terms of service providers’ access to service users. For example,
in Lithuania, the right of private providers to receive compensation from the state for providing services to state-insured
patients in healthcare was put to question before the Constitutional Court by the then health minister in 2013. While the
court  ruled  in  favour  of  private  providers  having  the  right  to  fair  competition  for  services  and  users,  the  general

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predisposition against private provision in this sector makes the environment in which private providers operate insecure.
This, in turn, could adversely affect their role in filling gaps in public services. 

Quality, efficiency and effectiveness

Key finding: Although private sector participation is intended to increase quality, few examples of quality measurement
exist, even at sector level. 

Quality
Higher quality of services is one of the arguments used in favour of a greater role for the private sector in the provision
of public services. Indeed, in some case study sectors, arguments can be made in favour of private providers contributing
to a higher quality of services.

n

n

n

In sectors with more private providers, more people could get services from public providers, as is the case with
employment services in Sweden and ECEC in Lithuania.

It may mean that more time is spent with users. The privatised employment services in Sweden were found to use
more  labour-intensive  technology  and  more  personalised  services.  They  also  succeeded  in  better  motivating  job-
seekers to search more intensively by, among other factors, spending more time with them. In the case of long-term
care in Spain, by contrast, users complained of the worsening of their care because the visits by home-help assistants
sometimes lasted only a few minutes, meaning they were forced to pay for additional staff time themselves. 

It can lead to greater user satisfaction. Anecdotal evidence in some of the case study sectors suggests higher user
satisfaction with private provision. In Sweden, unemployed job-seekers enrolled in job search activities with private
providers  said  that  they  were  more  satisfied  with  their  caseworker  and  the  service  received.  Home-care  user
satisfaction surveys conducted by the National Board of Health and Welfare in Sweden show a larger share of older
people using private providers reporting that ‘compared to users of in-house home-care services, they can to a larger
extent influence the time when the home-care service is delivered and also that the private provider takes into account
their  opinion  and  request  for  help’  (Socialstyrelsen,  2014).  Interestingly,  users  of  home-care  services  overall  in
Sweden do not show a preference for private providers. The main concern and potential drawback of private elder
care expressed by interviewees was the fear of a lack of continuity in the provision of services.

n There can be greater innovation and variety in services. Competition for service users has led private providers to
offer state-of-the-art services to private-paying clients or to better compete with public ones. For example, in tertiary
healthcare in Spain, the private Ribera Hospital experienced an increase of 37.3% in the number of births versus 2.4%
growth in other hospitals over the same period. This was as a result of the hospital offering epidural anaesthesia with
the  aim  of  attracting  clients,  which  was  deliberately  restricted  in  some  public  hospitals.  In  Lithuania,  the  private
secondary  healthcare  provider  who  was  interviewed  offered  innovative  preventive  services  such  as  non-invasive
pre-natal DNA testing. In addition, ECEC providers offered a range of activities during regular day-care hours that
were treated as extracurricular and paid services in public kindergartens. 

One  common  trade-off,  across  case  study  countries  and  sectors,  is  that  between  increased  access  and  a  reduction  in
quality of services. In both Spain and the UK, where the private sector was looked upon to cut costs of public services,
this was achieved by cutting jobs and resulted in worsening working conditions for staff. In the UK, this particularly
affected part-time, low-paid women workers. Although working conditions are not a central question for this research,
they ultimately affect the quality of services being provided. In the UK, the low hourly rate paid by local authorities to
private  providers  and  the  flexible  contracting  arrangements  of  the  providers  themselves  have  created  something  of  a
cost-cutting spiral – low investment in training and a high turnover of care staff carries clear implications for both the
continuity and quality of care. The increasing shortage of staff among both state and private sector providers of elder

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care (driven in part by low hourly rates of pay) raises questions about the ability of the market to provide safe, reliable
and high-quality care. Providers that wish to offer good rates of pay, guaranteed-hours contracts and staff training may
find themselves squeezed out of the market by larger firms that can afford to undercut on price by cross-subsidisation
and paying staff just the national minimum wage. Part of the solution could be to monitor their activity and insist on
certain levels of quality.

Efficiency and effectiveness
Cost-efficiency, one of the main arguments in favour of a greater role for the private sector, is impossible to gauge in
any of the four case study countries, although some separate studies were cited and opinions voiced in both directions.
Hidden  costs  are  commonly  cited  as  an  issue  in  calculating  the  cost  of  service  from  public  versus  private  providers.
These costs include the administrative burden of engaging the private sector, be it through procurement processes or
buyer–purchaser  schemes,  and  supervising  and  monitoring  the  quality  of  and  access  to  services.  It  has  to  be
acknowledged, however, that monitoring should be done for both public and private services. 

However, as with quality and access, arguments on this issue can go both ways. To provide some examples that support
the idea that private sector provision means cost savings, in the UK cost savings of around 20% are assumed possible
with  each  contract  placed  with  the  private  sector  (Whitfield,  2012).  In  Spain,  various  analyses  of  efficiency  of
concessions versus direct management of public hospitals show varying results. Arena and Alberto (2013) concluded that
the ‘average full departmental health expenditure (primary and specialty care) … in 2012 is lower than its expenditure
on direct public management by 11.7%’ (p. 12). The case study concession holder estimated that if such differences were
possible  to  calculate,  concessions  would  represent  savings  of  25%.  However,  several  studies  hold  that  there  is  no
empirical evidence for this. For example, Acerete et al (2011) state that ‘the available figures lead us to the conclusion
that the second contract [in the Alzira case] is not as good a deal for Valencia’s Department of Health as the current
official narrative claims’ (p. 25). Furthermore, in Sweden, caseworkers in private employment services were found to
spend more time with clients, which was seen as a gain in quality; however, this did not translate into higher overall
chances of finding a job, suggesting that there are no large efficiency gains to be made from outsourcing job placement
activities to private providers.

Regarding effectiveness in terms of achieving better results, in UK employment services, some improvement can be seen
in the aggregate number of successful job outcomes, but it is true only for groups closer to the labour market (the results-
based payment system means more focus on work-ready clients). The flipside of this argument, however, is that in the
UK there is a general misalignment of incentives in the payment-by-results system, as workers are pushed to take on any
available job, as opposed to building up the skills necessary to secure a desirable job they could sustain. In Lithuania,
there is no evidence either to verify whether the improved employment outcomes were sustained over time. 

Employment practices are also connected with effectiveness. In healthcare services in Lithuania, for example, private
centres hire more of their doctors on a part-time basis, paying them only for their active hours of work, whereas public
providers act as primary employers. Many doctors work in both public and private establishments, having in some cases
as many as six employers. The issue of private providers paying only for the ‘active’ hours of their high-cost staff is also
apparent in tertiary healthcare in Spain, where there are reports that insufficient numbers of staff are on call at a given
time. 

Working time is also related to effectiveness. Hours of service tend to be longer among private providers, some of which
provide  their  services  over  the  weekend.  For  example,  the  MRI  clinics  that  operate  under  service  agreements  within
public hospitals in Lithuania remain open on Saturdays and Sundays when all other planned services in these institutions
are  not  being  provided.  This  allows  the  private  providers  to  maximise  their  use  of  the  equipment,  thus  ensuring
profitability. But it also increases access for patients, including public patients. 

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Conclusions and policy pointers

7

Private providers respond to market opportunities. As the case studies illustrate, these can range from those with the
potential  to  produce  a  small  profit  –  like  healthcare  and  ECEC  services  in  Lithuania  –  to  very  large  profit-earning
possibilities  made  possible  by  large  service  contracts  with  municipal  authorities  in  Spain,  Sweden  and  the  UK.  The
potential profits to be gained from the provision of public services determine the very nature of the providers that emerge
to meet demand. In Spain, Sweden and the UK, private providers have evolved into large, consolidated and international
or  venture-capital  backed  companies  as  a  response  to  procurement  processes  that  target  large  providers  and  require
economies of scale for feasibility. In Lithuania’s healthcare sector, private providers are typically small general practices
and  family  doctor  clinics,  perhaps  because  many  of  them  were  established  before  the  introduction  of  tax-financed
services. 

The implications of this are: 

n

the profit incentive and quality of services are not always aligned; 

n degrees of separation between the contracting authorities, providers and ultimately service users can increase; 

n with the possibility of shifts of ownership and accordingly business models, the risk increases that the well-being of

the public becomes a trade-off for the profit incentive. 

In this study, non-profit and for-profit providers have been put into one category – private providers. In reality, the two
types  are  essentially  different  from  each  other  and  do  not  necessarily  work  hand-in-hand  in  the  provision  of  public
services. In ECEC in the UK, for example, non-profit providers run most sessional care – pre-school care limited to a
maximum of 3.5 hours per day – whereas private providers dominate in full day care. This means that the two types do
not coexist in the provision of the same service. In Spain, non-profit providers used to dominate in home-help services.
However,  they  have  been  displaced  by  large  for-profit  companies  due  to  very  high-value  procurement  contracts  that
make  it  impossible  for  small  firms  to  compete. They  have  also  been  displaced  by  selection  criteria  that  attribute  the
highest  weight  on  price,  deeming  experience  in  the  field  unimportant.  Given  these  differences,  private  for-profit
companies and social economy or third-sector entities should be distinguished from each other in any analysis of their
role in the provision of tax-financed services. 

A  mixed  picture  also  emerges,  across  case  study  countries  and  sectors,  regarding  whether  or  not  private  provision
delivers on the motives behind greater private sector involvement: efficiency gains, more choice and improved quality.
This is confirmed by other EU research studies. As the PIQUE project revealed (cited in Flecker and Hermann, 2009),
privatisation had varied effects on quality. It was also found that ‘positive effects and better performance as compared
to other countries were mostly the result of superior regulation rather than of competition or private corporate initiative’
(Flecker and Hermann, 2009, p. 98). Any valid assessment of whether private providers may or may not be better suited
than public providers to providing public social services should consider the counterfactual, instead of comparing private
provision of public services with how the public sector used to be. How would the public sector have fared with these
services without resorting to the private sector? An alternative solution is public sector reform. Even though it was not
the  subject  of  study  in  this  research,  experiences  with  insourcing  or  other  solutions  to  increasing  access,  quality  or
effectiveness of services within the public sector itself may also be informative as to the merits or lack thereof of private
sector provision. 

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Outcomes of private provision of public services

Access 
There is evidence showing both increased and more limited access as a result of a greater private sector role in delivery.
The  question  of  access  is  linked  to  financing  –  in  cases  where  there  is  equitable  financing  for  public  and  private
providers, as is the case in Sweden, access for service users remains unchanged or improved because of greater variety
and expanded capacity of available services. However, where the state is forced to reduce the financing of a particular
service, as was the case with elder care in Spain, the entry of the private sector means reduced access for service users
as a result of the increased cost of the service. In Lithuania, where the capacity of public providers is insufficient to meet
demand, the entry of private providers increased access to public services by means of extended supply. However, access
to private providers themselves is contingent on economic means as they require higher co-payments. A key issue for
access is the capacity of the state to prevent and mitigate risks associated with contract failure with large providers of
public services. 

Quality
Quality  was  also  an  equally  contested  issue  among  sectors  and  providers.  None  of  the  case  studies  showed  a  clear
preference for private sector provision on the part of the service users, except for Spain, where the main conclusion is
that quality was not improved as a result of a greater role for the private sector. There is a greater case to be made for
improving  user  choice,  which  in  itself  is  a  quality  control  mechanism,  by  ensuring  competition  between  private  and
public providers. One issue is that the business opportunities created by opening up competition to private providers and
the procurement processes involved, which make it difficult for small companies to compete in some countries, most
notably in Spain, have attracted companies without experience in the sectors concerned. This is bound to have a negative
impact on the quality of services. 

Effectiveness and cost-efficiency
In all the case studies, there have been attempts to measure whether the private sector is, in the end, a cost-saving or
more effective mechanism, or just another way of delivering services. No clear conclusions have emerged, although there
are claims (most often by the private providers themselves) that a greater private sector role represents savings, with
some  suggesting  savings  of  25%.  However,  there  is  no  clear-cut  methodology  to  calculate  the  respective  savings  of
private versus public provision because of the complexity and, in many cases, the novelty of the mechanisms involved.
Moreover,  given  that  public  services  in  all  sectors  and  countries  are  constantly  undergoing  change,  often  related  to
changing administrations, there is no stable baseline against which to compare new changes at a given point in time.
Some authors find that the cost-saving calculations are overly optimistic given the numerous hidden costs of engaging
the private sector, including administrative, monitoring and follow-up needs, and in the event of large contract failures,
the need for state-funded solutions. 

Role of the state as regulator 
The role of the state as a regulator becomes increasingly important as private provision grows, as failure by the private
sector to provide the public services it is contracted to deliver would involve such a high level of risk. Key factors include
the choice of suitable providers as well as the need for transparency in the procurement and certification processes and
the ownership structures of the providers. 

Some authorities have responded to these risks by restricting access to funding to public providers only, as was the case
of  healthcare  in  Lithuania.  Alternatively,  the  UK  case  study  cites  successful  examples  of  insourcing  or
remunicipalisation in some local authorities, which helped to both minimise the risks associated with contract failure and
poor  performance,  while  also  lowering  running  costs  through  better  staff  management  and  reduced  turnover.  This
brought greater benefit to the service user. The risk of reduced access to services in Sweden’s ECEC and home care was

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Delivering public services: A greater role for the private sector?

addressed by a system of income-related fees for the service recipients set by the municipalities, where private providers
are not allowed to charge additional fees. 

In the eyes of the public, the private provision of tax-financed social services is a contested topic, at least to some extent,
in the case study sectors. In Spain, for example, a 2008 survey showed the public’s strong preference for both public
funding and public provision of education, health and social services (87%, 86% and 70% respectively). Indeed, private
providers are in some cases looked upon to provide public services without the backing of public funds, which makes it
seem  as  if  private  provision  is  responsible  for  the  marketisation  of  services.  However,  as  the  Swedish  case  study
illustrates, when backed by public funding and with some regulatory mechanisms such as price ceilings in place, private
provision can be at least as good as the public offering and does not result in reduced access for service users. Given the
highly politicised nature of the question of the private sector taking on more and new tax-financed services, countries
should pay due attention to public consultation on questions relating to public service provision via private providers. 

While employment and career issues are not the focus of this analysis, it should be noted that without considering these
issues, for example whether public and private providers invest equally in training or other important elements of career
development, it is not possible to gauge with any accuracy the long-term relative advantages of one over the other. To
give an example, it may be that private providers rely on staff trained by the public or the third sectors, meaning that
their business models may not be sustained over time. Moreover, as is most evident in healthcare, where the private
sector is not the primary employer of its medical staff, it is possible that the system requires public providers to be the
primary employers in order to be financially feasible, as illustrated by the case study on healthcare in Lithuania. 

Policy pointers 

Coherence and continuity
n Consider  existing  non-profit  sector  solutions  to  specific  service  needs  and  seek  avenues  to  collaborate  with  and
protect providers in this sector so as to harness the experience they have built up over the years. As the case studies
illustrate, organisations in the non-profit sector cannot compete for large procurement contracts against consolidated
private for-profit firms that benefit from economies of scale.

n Learn from insourcing or remunicipalisation exercises, as expanding the role of the private sector is not the only

means of improving the quality of services. 

Monitoring and evaluation
n Apply uniform performance indicators for quality of services regardless of the nature of the provider delivering them.

n Develop  mechanisms  for  systematic  monitoring,  evaluation  and  oversight  of  service  provision  of  all  providers  of
public services at the level of the contracting authority. Ensure that the results of these mechanisms feed into public-
service-related policy and practice.

n

Improve the technical capacity of governments to establish mechanisms and conditions for fruitful collaboration with
the  private  sector  through  sharing  the  findings  of  systematic  evaluations  and  state-of-the-art  research  on  public
services and how they are managed. As the Spanish and UK examples of procurement for public services illustrated,
private providers become involved in service delivery through increasingly complex organisational arrangements,
which can mean that the actual providers are not the same as the original contractors. It is also important to ensure
that governments and public servants have the administrative capacity to implement policy decisions. 

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Delivering public services: A greater role for the private sector?

n Develop a methodology for calculating all the costs included when service provision is contracted to private sector
organisations.  This  should  explicitly  include  the  administrative  cost  to  public  sector  commissioners  and  contract
managers  and  any  cost  penalties  incurred  for  variations  to  agreed  services  or  products  or  early  termination  of
underperforming contracts. 

Risk aversion 
n Minimise the risk of service contract failure by studying the conditions under which this has occurred in the past,
identifying lessons learned. Ensure that those handling such contracts have the administrative capacity to do so. 

n Given the high societal cost of interruptions to public service delivery, ensure appropriate contingency planning so

as to avoid discontinuity of public service provision in the event of a failure of contracted providers. 

n Ensure transparency in financing and ownership of public service contractors, which may be backed by private equity
and exposed to high levels of financial risk, so as to avoid the detrimental effects of ownership change on the end
users  of  the  service.  For  example,  by  reducing  the  volume  of  services  contracted  by  single  specific  procurement
contracts,  contracting  authorities  would  reduce  the  opportunity  for  large  businesses  to  dominate  and  allow  other
actors to compete. 

Future case studies on the experiences of service users regarding private provision of public services could benefit from
representative public opinion polls to measure satisfaction with services; with the exception of Sweden, this was not
measured in the case study countries. In addition, as the study revealed differences between the conditions under which
non-profit and for-profit companies provide public services, future studies could analyse how they fare in comparison to
one another and the success factors involved. 

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This  report  explores  the  growing  role  of  the  private  sector  in  the
provision  of  public  services  in  the  EU.  The  research  is  based  on
sector-specific  case  studies  carried  out  in  Lithuania,  Spain,
Sweden  and  the  UK.  It  focuses  specifically  on  social  services  of
general interest (SSGIs) in the areas of healthcare, early childhood
education  and  care  (ECEC),  employment  services  and  long-term
care.  The  findings  show  that  in  the  two  countries  with  long-
established welfare systems (Sweden and the UK), the key factor
driving  governments  to  expand  the  role  of  the  private  sector  has
been  the  expectation  of  gains  in  quality  and  efficiency.  In  the
countries  with  less-extensive  welfare  services  (Lithuania  and
Spain), budgetary constraints have been the key driver. The report
finds  that  greater  private  sector  involvement  in  the  provision  of
public  services  often  leads  to  less  equitable  access  and  that
quality-related outcomes can be mixed. 

The  European  Foundation  for  the  Improvement  of  Living  and  Working
Conditions (Eurofound) is a tripartite European Union Agency, whose role is
to  provide  knowledge  in  the  area  of  social  and  work-related  policies.
Eurofound was established in 1975 by Council Regulation (EEC) No. 1365/75,
to  contribute  to  the  planning  and  design  of  better  living  and  working
conditions in Europe. 

doi: 10.2806/3787
ISBN: 978-92-897-1390-0