This working paper identifies six questions that those introducing, adapting or overseeing contractual mechanisms in public services should ask to gain a better understanding of their costs and benefits.

We draw on the well-established ‘theory of the firm’ literature to identify a set of questions that can help policy makers and commissioners assess the suitability of using contractual mechanisms in any given service or function. A ‘yes’ answer to any of the questions creates challenges for ‘in house’ management but generates particularly acute risks when using contractual mechanisms. We argue therefore that policy makers and commissioners should not introduce contractual mechanisms in these areas without putting in place a clear strategy for mitigating these risks.