Results-oriented Budget Practice in oecd countries odi working Papers 209

Table 7: Wilson’s managerial matrix of public sector activities 

OUTCOMES 

Observable 
Unobservable 
Observable 
Production
e.g. payment of welfare 
benefits.
Managed through 
prescriptive performance 
Procedural
e.g. policy advice 
Managed through instilling a 
sense of professionalism and 
quality processes 
OUTPUTS 
Unobservable
Craft
e.g. police 
Managed through outcomes 
based performance 
measurement and 
management instilling a 
sense of duty and ethos in its 
operating staff 
Coping
e.g. education 
Managed through recruitment 
and training and a culture that 
values performance 
Source: adapted from Barzelay, 2001, p 137 and Petrie, 2002, p 136 
With results based budgeting, a legally enforceable contract may not be necessary or appropriate, 
such as in the case of inter-governmental delivery arrangements where it would, according to Petrie, 
be inefficient. In such cases, long-term relational contracting may be more appropriate. However, 
there is the additional cost of increased ex ante specification and ex post performance management 
systems, with additional layers of performance audit needing to be set against anticipated 
improvement in performance. 
Petrie concludes that decisions about the use of performance contracting should take account of a 
number of key variables 
•
“the nature of the goods and services being supplied; 
•
the type of institution and its relationship with the executive and other branches of government; 
and
•
the broader cultural and legal environment in which the relationship takes place” (Petrie, 2001, 
pp 142-43). 
Thus, taking account of transaction costs, enforceable contracts are inappropriate between public 
sector entities except with commercial state enterprises and commercial services. In particular, 
Petrie suggests that legally enforceable contracts are appropriate where government does not own 

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the supplier or where the state enterprise is a separate legal entity. In other situations he 
recommends a conditional grant. He advocates a less prescriptive regime where performance is 
difficult to assess, where adaptability may be required and where a high group professional culture 
exists.
5.4 Summary 
Of the countries examines, Sweden has the most flexible budgetary system with the least centralised 
reporting system, which has been criticised by their National Audit Office. Performance 
contracting requires ex post and ex ante controls and may be conducted through different types of 
contract. Key factors in the choice of contract type include the locus of the delivering agency, the 
length of the contract and the type of good or service to be delivered, the level of transaction costs 
and the observability of outputs and outcomes. Substantial progress has been made to develop the 
observability of outputs and systems to measure them. The UK experience shows that the 
development of indicators enshrined in Public Service Agreements is work in progress. 

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