Monday, March 1, 2010

Perspectives on Government Outsourcing and Private Contractors

Outsourcing of sovereign duties to private contractors is not novel to the government of developed economies especially the United States of America. However, this concept is relatively new to the India government, but is fast catching up in the wake of increased workload and the absence of trained employees. In a recent development last year the Indian government decided to hire private professionals to scrutinise companies registered with the RoC inorder to increase the scrutiny of corporate financial statements and ensure better regulatory compliance. Such a move would naturally lead to the question of transparency and accountability of these private professionals. In light of this, a recent article published by Edward Rubin titled ‘the possibilities and limitations of privatization’ in 123 Harv. L. Rev. 890 (2010) is of great importance.

Rubin in his article has reviewed the book “Government by Contract: Outsourcing and American Democracy”. Rubin analyses and brings out the debate surrounding government outsourcing in four broad sub- parts as discussed under:

Historical Perspective: Privatization
Rubin whilst analysing the essays in the book points out that critiques of privatization which revolve around the point of stringent demarcation of Public-Private duties are simplistic and highly flawed. Rubin in support of the above assertion cites several historical evidences to suggest that historically, there was no function which was inherently public.

Critiques of Privatization
The author conceptualizes the problem through a contemporary example i.e. use of private contractors by the U.S. in Afghanistan and Iraq. These Private contractors were engaged in paramilitary activities, worked on surveillance and planning. Ironically, the U.S. government appointed another private party to monitor the above mentioned private contractors. The author points that out that such a model imposes several problems. Firstly, there does not exist any competitive bidding (prime reason for the efficiency of private players) in the allocation of these private contractors as there are hardly any non-government for such works. Secondly, the private employees cannot be monitored as they lie outside the hierarchical structure which is fundamental in any government set up. Finally, legal and moral norms cannot be imposed due to lack of democratic accountability.

Proposed Reforms of the Privatization Process
Whilst analysing the essays in the book Rubin puts forth the suggestion of the scholars in three broad categories:
Constitutional Reforms:
Rubin points out that the scholars suggest an expanded role of the judiciary in the monitoring of private contractors in light of the fact that the executive and the legislature has failed to do so. However, Rubin underlines the impediments before the judiciary in doing so. One of the looming impediments before the judiciary is the restricted interpretation of the State Action Doctrine. The doctrine stipulates that the due process doctrine can only be applied to private contractors if they are deemed to be “state actors”. As Rubin points out, the current position of law limits the finding that a private contractor can only be deemed to be a “state actor” if it is performing public functions which are traditionally done by the sovereign for or on behalf of the people.
Such concerns also exist in India as the scope of judicial review (rights based, administrative or constitution compliance review) is limited to “state action” alone. However theoretically if there is to be a change in this regard, it would still be pragmatically impossible as the Indian judiciary is already burdened with pending cases.
Statutory Reforms:
As Rubin rightly points out that several authors have recommended statutory changes inorder to bring transparency and accountability on the part of the private contractors. One of the changes recommended is to the Freedom of Information Act (FOIA), so as to make it applicable to private contractors. Such a reform can be undertaken in India as well through the newly enacted Right to Information Act (RTI).
Common Law Reforms:
The other measure proposed by eminent scholars is in the form of common law reforms. It stipulates that the judiciary should ensure that contractual terms are used to import public values such as fairness, transparency and accountability into the realm of private contracting.

Criticism to these Reforms
However, there are several authors who disagree with the above stated reforms. According to these authors such reforms would be unnecessary and would create complexities in an already complex area of government outsourcing and private contracting. Further, it would lead to an environment of uncertainty, a situation which is detrimental to the efficiency of private players. These authors point out that the solution lies in firstly; discontinuing the rigidity with the civil services exam so as to enable the government to hire well trained employees and secondly, expand the federal monitoring system.
It seems that in the coming years India would be rapidly moving towards a similar phenomenon of privatization where the government’s role would be that of an enabler. Hence, it would be useful to learn from the experiences of already developed jurisdictions on this subject.