DEFM200

ORI GIN AL PA PER

Legitimate Deficit: Competitive Bidding in a Residual and Semi-democratic Welfare Society

Zhuoyi Wen • Alice M. L. Chong

Published online: 22 August 2014

� International Society for Third-Sector Research and The Johns Hopkins University 2014

Abstract Competitive bidding for public subsidy allocation for welfare services

has been widely applied in established welfare states since the 1980s. Studies

conducted in these countries have inclined to understand competitive bidding as a

financing initiative and use an array of ‘‘failure theories’’ to explain its challenges

and failures. In contrast to these studies, the present study focuses on Hong Kong, a

residual and semi-democratic welfare state, and investigates competitive bidding as

a governmental policy instrument designed to increase the legitimacy of subsidy

award decisions. Based on an analysis of submissions in a recent policy review and

a review of existing policy documents, we suggest that the government may have

increased its decision-making power over NGOs, resulting in little advancement,

neither regarding welfare mix, nor concerning the legitimacy of resource allocation.

Résumé Depuis les années 1980, les états bénéficiant d’un dispositif d’aide so-

ciale établi ont largement utilisé les appels à la concurrence pour allouer des sub-

ventions publiques aux services d’aide sociale. Les études menées dans ces pays

tendent à interpréter l’appel à la concurrence comme une initiative de financement,

et font appel à toute une gamme de « théories de défaillance » pour expliquer les

défis que pose cette pratique ainsi que ses échecs. La présente étude se concentre sur

Hong Kong, un état semi-démocratique disposant d’un système d’aide sociale

résiduel, et se distingue des précédentes études en examinant l’appel à la concur-

rence comme un instrument de politique gouvernementale conçu pour accroı̂tre la

légitimité des décisions d’attributions de subventions. L’analyse des candidatures

dans un récent examen de la politique et la revue des documents de politique

existants nous permettent de suggérer que le gouvernement pourrait avoir gagné du

pouvoir décisionnel au détriment des ONG, n’entraı̂nant qu’un faible progrès qui ne

Z. Wen (&) � A. M. L. Chong

Department of Applied Social Sciences, City University of Hong Kong, Tat Chee Avenue,

Kowloon, Hong Kong

e-mail: [email protected]

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DOI 10.1007/s11266-014-9499-1

profite ni à la répartition de l’aide sociale ni à la légitimité de l’allocation de

ressources.

Zusammenfassung Ausschreibungsverfahren bei der Zuteilung öffentlicher

Subventionen für Sozialeinrichtungen sind in etablierten Sozialstaaten seit den

achtziger Jahren weit verbreitet. Studien in diesen Ländern neigen dazu, das Aus-

schreibungsverfahren als eine Finanzierungsinitiative zu verstehen und stützen sich

zur Erklärung seiner Probleme und Misserfolge auf eine Reihe von ,,Versagens-

theorien‘‘. Im Gegensatz zu diesen Studien konzentriert sich die vorliegende Studie

auf Hongkong, einem residualen und semidemokratischen Sozialstaat, und unter-

sucht die Ausschreibungsverfahren als ein politisches Instrument der Regierung zur

Erhöhung der Legitimität von Entscheidungen über die Bereitstellung von Sub-

ventionen. Beruhend auf einer Analyse von Ausführungen im Rahmen einer kürz-

lichen Überprüfung von politischen Richtlinien sowie einer Prüfung von

Dokumenten zu bestehenden politischen Richtlinien behaupten wir, dass die Reg-

ierung ihre Entscheidungsgewalt gegenüber nicht-staatlichen Organisationen unter

Umständen erhöht hat, was den Wohlfahrtsmix und die Legitimität der Ressour-

cenzuteilung nur wenig voran gebracht hat.

Resumen La licitación competitiva para la asignación de subsidios públicos para

servicios de bienestar ha sido aplicada ampliamente en los estados de bienestar

establecidos desde los años 1980. Los estudios realizados en estos paı́ses se han

inclinado a entender la licitación competitiva como una iniciativa de financiación y

utilizan una serie de ‘‘teorı́as del fracaso’’ para explicar sus retos y fracasos. En

contraste con estos estudios, el presente estudio se centra en Hong Kong, un estado

de bienestar semidemocrático y residual, e investiga la licitación competitiva como

un instrumento de la polı́tica gubernamental diseñado para aumentar la legitimidad

de las decisiones de concesión de subsidios. Basándonos en un análisis de pre-

sentaciones en una revisión reciente de la polı́tica y en una revisión de documentos

de polı́tica existentes, sugerimos que el gobierno puede haber aumentado su poder

en la toma de decisiones sobre las ONG, dando lugar a poco avance, tanto en

relación con el mix de bienestar, como en relación con la legitimidad de la asi-

gnación de los recursos.

Keywords Competitive bidding � Policy instrument � Policy network � Welfare NGOs � Hong Kong

Introduction

The advocates of marketization argue that healthy competition can break up

unnecessary monopolies established by the welfare state and thereby can lead to a

higher service quality at a lower price (Milbourne 2009; Savas 2000). In the West,

during the 1980s, competitive bidding was introduced as a new practice for

allocating welfare resources in mature welfare states. Competitive bidding

comprises a wide range of procedures for awarding contracts for out-sourced

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services to a preferred provider from a pool of bidders based on specific assessment

criteria (DeHoog 1984; Milbourne 2009). It usually has two main advantages. First,

the private sector is given an opportunity to operate publicly subsidized social

services. Second, the NGOs are expected to behave efficiently, effectively, and

responsively in service delivery in order to win government contracts (Savas 2000).

Most debates so far focused on the financing function of competitive bidding

with respect to cost reduction and quality improvement, and its impacts on NGOs

and their staff (Buckingham 2009). Research has revealed some unintended and

undesired outcomes of competitive bidding, such as a de-professionalization of

social care and a decline in service quality (Forder et al. 1995). These outcomes

imply that there is a failure to create a market (or a quasi-market) for welfare

services through competitive bidding. As identified by researchers, the causes of the

failure include inappropriate procurement and regulation strategies under an

incapable political-administrative system (DeHoog 1984; John and Ward 2005), and

the philanthropic insufficiency and paternalism (Salamon 1995). Thus, existing

explanations for the outcomes of competitive bidding tend to reside within a circle

of ‘‘failure theories’’ about the government (Le Grand 1991), the market (Stiglitz

1989), and voluntary sectors (Salamon 1995).

These studies, basing on the practices of mature welfare states in the West, show

that the effects of competitive bidding depend on the interactions among policy

actors from different sectors, and are heavily influenced by crucial factors and

forces in the larger social structure (Nightingale and Pindus 1997). This observation

highlights the importance of examining different types of interaction among policy

actors in different social contexts when studying competitive bidding. During the

introduction of competition, the groups who were favored and protected by the old

resource allocation practice and who feel threatened by the changes in the new

system, would resist the reform in order to retain as much of their original privileges

as they could. These policy debates can be solved through an array of democratic

mechanisms in established welfare states that have a stable state–society relation-

ship. In these societies, the financing function of competitive bidding, which

contributes to the sustainability of the welfare state (Glennerster 2010), is more

essential than its political implications.

Would the situation in an emerging welfare state with a changing state-society

relationship in the East be different from that of established welfare states in the

West? Are there different concerns about, and outcomes of, competitive bidding?

With only a few case studies, such as Shanghai (Jing and Chen 2012) and Taiwan

(Liu and Pong 2008), our knowledge of the influence of competitive bidding in an

Asian context remains in its infancy.

The present study will focus on Hong Kong’s experience, which will have

significant implication for the world, given that Hong Kong is a typical case of

residual welfare society (Chan 2011) and semi-democratic state (Lee 2005, 2012)

that adopts the New Public Management in a society with different historical

development and political characteristics. Moreover, treating Hong Kong’s

competitive bidding as part of the global diffusion of New Public Management

reform since the 1980s, the present study goes beyond previous research by

examining competitive bidding from a neglected perspective, namely the policy

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network and instrument theory (Salamon 2002). It looks beyond financing issues

and consider resource exchange and power sharing between the government and

welfare service providers (mainly NGOs), and examines the legitimacy of resource

award decisions within the social policy network.

In the following sections, we will review current literature on the relationship

between competitive bidding and policy network, and introduce the socio-political

background of Hong Kong leading up to the introduction of competitive bidding.

We will then introduce our research method. The findings from the examination of

existing documents on the subject matter will then be presented, giving both the

analysis of the authors as well as extracts from a secondary data source to support

our arguments. We will then discuss the findings and present our conclusions about

the impacts of competitive bidding on the relationships between different actors in

welfare resource allocation.

Policy Network and Competitive Bidding

We adopt Benson’s (1975) argument that an inter-organizational network can be

conceived of as a political economy concerned with the exchange and distribution

of two scarce resources, namely, political power and economic resources. When this

inter-organizational network is closely related to some public policy issues, a policy

network arises from the relations among the actors (such as the state and the service

providers) (Benson 1982; Rhodes 1985).

All resource allocation practices, in essence, provide the answer to the classic

political question of ‘‘who gets what and how’’ (Lasswell 1936). In the field of

welfare services, the successful candidate is awarded the contract and a certain

amount of subsidies, as well as the ‘‘legitimation’’ of resources (e.g., authority,

rights, and responsibilities) to carry out the social programs specified in the contract.

And welfare service providers supply their service-delivery capacity, information,

political support, and concent to state agencies (Saidel 1991). No matter what

welfare regimes the services may be under, these economic resources and political

authority are essential for the survival and development of social service providers

(Austin 2002; Benson 1975). In order to ensure an adequate supply of resources,

welfare agencies also adopt specific political strategies under certain rules and try to

exercise their own power to affect the flow of resources in the policy network

(Compston 2009). It is, therefore, the interrelationships between the politics, the

economy and society that shape the distribution of scarce social service goods, as

suggested by political economy theory (Minkler and Estes 1984).

Thus, competitive bidding is a political process that gains public recognition, and

a bottom-line consensus, of the award decision through an array of tendering

procedures. From the perspective of procedural justice, competitive bidding is not

only a financing policy for social services, but can also be understood as a

procedural policy instrument (Adams and Hess 2000). It is a type of governance

technique that indirectly but intentionally influences policy outcome through some

procedures such as advisory committees, public consultations, and judicial reviews,

in order to gain legitimacy for governance (Howlett 2000).

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In conclusion, competitive bidding is a tool for government to manage the

political process of resource exchange in the social policy network. It has

consequences on the actors’ political economic status in the network and may create

new inequalities in the distribution of resources and opportunities.

The Case of Hong Kong: In Search of Legitimacy in a Residual Welfare State and Semi-democratic Society

The political and economic consequences of competitive bidding were particularly

important to Hong Kong during the late 1990s at the end of its colonial rule and at

the start of its new governance under China.

Hong Kong was a British colony before it was returned to China in July 1997,

and became a Special Administrative Region (HKSAR). Before the 1970s, the

colonial state played a residual role in relation to the roles of family, community,

and market in social welfare on one hand (Chan 2011), and takes initiative in

governance such as law-making on the other hand (Lee 2005, 2012). Limited public

resources are invested in social programs annually while the decision-making power

is dominated by the state. NGOs were utilized for producing and delivering the

overwhelming majority of social services with support from oversea donations.

Social Policy Network Formation

The colonial state started to turn its attention to social policy and began to provide

subsidies to social service NGOs in the l970s (Tang 1998). Since then, NGOs have

been serving Hong Kong people and have been funded heavily by the state (Lee and

Liu 2012) after the withdrawal of overseas donations along with the growing

prosperity of Hong Kong. Based on exchanges in funding, cooperation, and power

between the state and the NGOs, a social policy network was institutionalized when,

in the 1980s, the government and the NGO sector arrived for the first time at a

formula for calculating subventions (Jones 1990). Nowadays, over 90 % of the

welfare services in Hong Kong are provided by more than 400 social service NGOs

(Hong Kong Council of Social Service 2009a). Among them, 171 agencies, which

includes all the well-established ones, are receiving recurrent subventions

(US$1.163 billion in 2011/12) from the Social Welfare Department to provide

most of the mainstream social services.

Policy Objectives of Competitive Bidding: Value for Money, Welfare Mix,

and Transparency

In view of the approaching sovereignty transfer in 1997, the governance legitimacy

of the colonial state was in decline from the late 1980s onwards. In response to this

legitimacy crisis, the colonial state introduced the NPM reform to manage the

collaboration between the state and welfare NGOs from the mid-1990s onwards

(Chau and Wong 2002; Cheung 2010; Lee 2005). Hong Kong, therefore, provides a

typical empirical case of extensive NPM practices in Asia, and can broaden our

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understanding of how international management practices impact local social

service NGOs and civil society (Chan 2012; Lee and Liu 2012).

In the ‘welfare subvention reform’ of the mid-1990s, the way to allocate new

service resources was one of the most essential issues. A ‘radical market-driven

option’ for competitive bidding was proposed (Coopers and Lybrand 1995, p. 27

and p. F11), and was put into practice by the newly born HKSAR government in

1999, two years after the 1997 Asian financial crisis and the sovereignty transfer.

Among all services, eldercare was identified as the most appropriate service to try

out the new initiative (Social Welfare Department 1999) due to the existence of a

private market in the form of private homes for the elderly.

The introduction of competitive bidding carries three policy objectives. First, it

aims to achieve ‘better value for money’ due to the increasing public expenditure on

eldercare. Hong Kong has a fast-aging population that is resulting in a sharp

increase in the demand for various long-term care services, particularly institutional

care for the aged. As of March 31, 2001, the waiting time for state-funded eldercare

facilities ranged from 13 to 35 months (Audit Commission 2002). Population aging

also brings about a corresponding increase in public expenditure. The public

expenditure on eldercare has expanded rapidly, from US$205 million in 1997/98 to

US$410 million in 2001/02 (Social Welfare Department 2001c). In a pilot scheme

on both home care and meal delivery service conducted in 1999, the contracting out

of the two services had achieved 20 % savings when compared with the provision of

similar services under the conventional mode. Moreover, the home care service

provider served 112 users a month on average, which was almost twice the required

minimum service output of 60 users per month (Social Welfare Department

2001a, b).

Second, competitive bidding is intended to advance the welfare mix among state,

business and society to provide quality service, which will ease political and

financial pressures on the government. The government believed that, under

competitive bidding, the NGOs would be able to mobilize community resources to

provide innovative and value-added services through their own networks (Social

Welfare Department 2001a). More importantly, competitive bidding provides the

private sector with an opportunity to upgrade its service quality further (Social

Welfare Department 2001c). Private aged care homes have been a booming industry

in Hong Kong since the mid-1980s and have dominated residential eldercare

services (Cheng 1993; Chong 2009). Private homes currently provide 70 % of the

residential services in Hong Kong (Social Welfare Department 2011). The waiting

time for eldercare homes run by the NGOs receiving government subventions was

as long as 35 months, while the waiting time for places bought by the government

from private operators was only 11 months (Audit Commission 2002). However,

the prolonged waiting time for public residential care reflects that private homes are

not the preference of the majority of the older generation because the quality of

service cannot be guaranteed.

The quality of service is significantly determined by the purchasing power of the

potential residents. Given that no pension system exists and family support is

unpredictable in Hong Kong, private aged homes that serve low-income people

budget service cost against the amount of social security payments most residents

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receive. Thus, the charge tends to be low, resulting in crowding, poor staffing, and

ill-suited premises (Cheng 1993; Social Welfare Department 2012c). It was the

state’s hope that competitive bidding might engage more and more providers from

the private sector to provide quality service to the elderly.

Finally, given the substantial public resources invested annually in eldercare,

competitive bidding is expected to help ensure transparency in the resource award

process and to legitimize the government’s selections. Previously, the resource and

responsibility of operating a new service unit was assigned to particular NGOs by

the government largely based on the long-term cooperative relationship it had

developed with the individual NGOs (CCSG 2010). The NGOs expressed that the

award decisions sometimes appeared to ‘contradict informal indications which have

previously been given’ (Coopers and Lybrand 1995, p. F9). Competitive bidding

would be a break from the past, calling for an end to service assignments decided by

officials alone, and introducing the element of competition to improve the

legitimacy of award decisions that have been badly tarnished by abuse of power.

In sum, by changing the funding procedure from assignments to competitive

bidding, the Social Welfare Department intended to introduce a fair, open, and

transparent process for securing quality service, while at the same time maximizing

innovation, adding value, and achieving the best value for money in the use of

public resources to help the elderly in need (Social Welfare Department 2001a).

Small-Scale Implementation of Competitive Bidding

Three mechanisms are currently used for the allocation of new subvented service

units in Hong Kong: competitive bidding, proposal invitations, and in situ service

expansion (Social Welfare Department 2010a). Competitive bidding is only applied

in services for the elderly, including community care services, such as Enhanced

Home and Community Care Services (EHCCS); and residential care homes (some

of them also provide day care services). The amount of funding allocated through

competitive bidding is rather small. In 2011/12, although the recurrent subvention

for all welfare services increased to US$1.163 billion, contracting for services in the

form of competitive bidding was less than US$126 million (or 10.9 %) (Social

Welfare Department 2012a). Furthermore, not all tenders were open to the private

sector. EHCCS is under restricted tender for NGOs only (Social Welfare

Department 2010a). Moreover, other entry barriers and preconditions hindered

the placing of bids even among the NGOs. For example, a bidder was required to be

already running a registered residential home in Hong Kong (Social Welfare

Department 2010b). All of these indicate a very small-scale implementation of

competitive bidding in Hong Kong.

Research Design

The evolution of competitive bidding in Hong Kong reveals a part of the

complicated political economic interaction surrounding the initiative. As Salamon

(1989) argued, it is the political economy of each policy instrument, such as its own

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distinctive procedures, network of organizational relationships, and skill require-

ments, that makes the use of them so significant.

To understand the effects of competitive bidding, we suggest looking beyond the

government’s stated policy intents and examining how economic and political

reasons constrain the effectiveness of this procedural policy instrument. A crucial

question is does the procedural change after the implementation of competitive

bidding in Hong Kong achieve greater fairness and cost reduction through a

transparent process of resource allocation similar to that in Western welfare states

(Sellick 2011)?

The present study uses secondary data analysis of written submissions to the

policy review committee on the welfare subvention system, the Lump Sum Grant

Subvention System, from the latest policy review in 2008. A total of 133

submissions from various policy actors in the Hong Kong welfare sector, including

individual social workers, service users and subvented NGOs, have been received.

Among them, 127 written submissions were uploaded to the website of policy

review committee with submitters’ permissions (Lump Sum Grant Independent

Review Committee 2008).

All 127 submissions were downloaded from the official website of the review

committee (www.lsgir.hk) in October 2010. Among 127 written submissions, more

than a half (66 or 52 %) was made by individuals, while 54 (or 44.1 %) were

submitted by organizations. And there were 2 (or 1.6 %) submissions prepared as

the combination of organizational and individual opinions, and 3 submissions were

unable to be classified. The identified backgrounds of the individuals and organi-

zations that made the submissions were diverse. Welfare NGOs made up the largest

proportion of the written submissions (30 or 23.6 %), followed by individual social

welfare practitioners (21 or 16.5 %), staff unions (12 or 9.4 %), and service users (3

or 2.4 %). The backgrounds of other submissions could not be identified due to lack

of complete information. The content of written submissions was mainly about

salary, staffing arrangement and corporate governance in the current Lump Sum

Grant subvention system (Policy Watch 2009). As a part of the subvention system,

competitive bidding was an important subject being discussed in these written

submissions. Content analysis was conducted to identify and code important themes

concerning competitive bidding.

Moreover, the main policy and procurement guidance documents, published

studies and, in particular, the first thorough landscape survey result of Hong Kong’s

NGOs, the Study on the Third Sector Landscape in Hong Kong (Central Policy Unit

2004), were also included in the documentary review.

Findings

The three policy objectives of competitive bidding in Hong Kong, namely, value for

money, welfare mix, and transparency and legitimacy, fall into two categories of

outcome: economics and politics. Findings are presented in relation to these two

categories. We first discuss economic outcomes in terms of value for money and the

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welfare mix, and then analyze the political effects in terms of transparency and

power relationships.

The Economics of Competitive Bidding

Value for Money in terms of Cost Saving

The major difference between competitive bidding and other resource allocation

approaches is that the contract sum (i.e., the subvention amount) in the former is not

fixed. Bidders compete in terms of both price and quality of service. According to an

audit report (Audit Commission 2002), a place in the care and attention homes

under competitive bidding costs US$662 a month, which is considerably lower than

the cost of US$1, 143 for a place in government-subvented care and attention homes

operated by NGOs under the conventional mode. Thus, the government manages to

significantly reduce the unit cost through competitive bidding.

How do service providers generate such significant cost savings? How can they

carry out services (including value-added services) as specified in the contract even

though the contracted amount should be insufficient? As advocated by NPM (Hood

1991; Pollitt 1993), successful bidders achieve cost savings via better management

and/or service enhancement under the pressure of market competition. However, it

was found that cost savings in Hong Kong were usually generated from salary cuts

and poor staffing given that social service delivery is a labor-intensive industry with

the cost of human resource taking up almost 80 % of the total operational cost. A

lawmaker found that the salary of a staff member working for a competitive bidding

unit was less than 60 % of the salary point for his/her professional rank (Cheung

2000).

At the same time, some NGOs, especially the large scale ones, would mobilize

their organizational resources to provide these outsourced services, such as

deploying resources (e.g., manpower) from other service units of their own agency,

or conducting fundraising campaigns, in order to fulfill their mission to meet the

organizational goal of service expansion. Several practitioners described how they

mobilized their resources to bid for the projects and the consequences:

Bidding for a new project messes up our own plans. We have to squeeze

already tight human resources to write up proposals, and calculate the costs

and the effect. It increases the administrative load. (CPU 2004, Case W03)

Insufficient Participation and Monopoly Remains

Thus far, 53 service units, including 21 contract homes and 32 EHCCS, have been

awarded via competitive bidding. However, only three out of the 21 contract homes

are run by three private agencies, two of which were newly set up, one in 2008 and

the other in 2009. The rest of the contract homes and all EHCCS are operated by

NGOs, reflecting the low participation rate (5.66 %) of the private sector. Moreover,

16 of the NGOs that operate the 50 service units also run other service units

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recurrently subvented by the Social Welfare Department (Social Welfare Depart-

ment 2012d). In Hong Kong, NGOs seem to be capable of being highly competitive.

The competition between NGOs and the private sector is not as fierce as that among

NGOs. In the pilot scheme for meal services, which did not impose any special entry

restrictions for the private sector, only 1.5 out of nine contracts were awarded to the

private sector.1 The former director of the Social Welfare Department said that ‘‘If

you ask me whether there is a level playing field under our existing proposal, my

answer is no. They (the NGOs) are still in an advantageous position, with their

strong experience’’ (South China Morning Post 2001; see Table 1). Based on these

results, a conclusion could be drawn that only very few new actors, particularly

from the private sector, have entered into the social policy network after the

adoption of competitive bidding.

In addition to the policy barriers discussed above, the reason for the lack of

enthusiasm from the private sector is twofold. Although 578 licensed private homes

exist in Hong Kong, only a few of them are interested in competing for government

contracts because they are concerned about the high standards (e.g., manpower ratio

and value-added requirements) set by the government. More importantly, many

private operators are concerned about low profit margins while competing with non-

profit-making NGOs. In general, private homes are in pursuit of high profits from

service provision, whereas NGOs, staffed mainly by professional social workers,

embracing the service mission and receiving stable subvention from the state, tend

to pay more attention to the quality of service and to the wellbeing of service users

rather than to economic profit.

Actually, not all NGOs are interested in bidding for new service units. Some

NGOs are reluctant to participate in price competition without evidence that they

will be able to provide any improvements in management and service provision.

These NGOs consider competitive bidding to be incompatible with their missions

and organizational philosophy, and thus, they decide not to bid for any contracts

(CPU 2004; Tian 2009). A practitioner claimed the following:

We do not plan to bid on a project from the Social Welfare Department. The

bidding process is hurting the relationship between organizations and social

workers. The result is a survival game. Aims and beliefs in services are

forgotten… It was initially assumed that the bidding system would not result

in cutthroat competition and that the granting of services would be on a longer

term basis. However, it seems that the bureaucracy hindered the real idea of

the system and created unwanted results. (CPU 2004, Case W06)

Although more than 400 social service NGOs exist in Hong Kong (HKCSS

2009a) and many of them may be interested in bidding for government contracts,

competition has not broken up the existing monopoly. The competition in contract

pricing poses challenges to NGOs’ financial capacity and sustainability. All the 16

NGOs that have succeeded in bidding are large, well-established agencies with long

histories. They provide multiple services with annual expenditures exceeding

US$6.4 million, which fall into the categories of large and mega NGOs (HKCSS

1 One contract was awarded to a collaboration between a private company and a NGO.

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2009b). Among these agencies, six manage more than half of all the competitive

bidding contracts. Moreover, they possess good track records as service providers

for the elderly. Thus, while all NGOs (including well established and usually larger

as well as new usually smaller ones) have an equal chance in competing for other

welfare trust funds which are usually of smaller amounts (Lee 2012), traditional,

well-established and large-subvented NGOs can defeat newcomers in the zero-sum

game of competitive bidding.

A question arises: if subsidies allocated through competitive bidding are

insufficient for NGOs to recover all their costs, then why do some NGOs

extensively take part in bidding? To answer this question, we may need to look at

competitive bidding from a political perspective.

The Politics of Competitive Bidding

Competitive bidding has always faced fierce criticism and strong resistance from the

social welfare sector and from scholars in Hong Kong. A Legislative Council panel

even passed a resolution opposing such a scheme (South China Morning Post 2001).

However, with an ‘‘executive-led’’ political regime, the HKSAR government was

able to put competitive bidding into practice at the cost of restrictions on the scope

and degree of private sector participation.

As discussed in the previous section, only a few new service providers from the

private sector succeeded in entering the policy network, so the real ‘battle field’

occurs in the welfare NGOs sector. The next section, therefore, examines the

restructuring of the policy network involving the NGOs, and analyzes whether the

legitimacy of the state’s resource allocation could be established after introducing

competitive bidding.

Stratification of the NGO Sector

Higher Political Influence and Status

NGOs simultaneously pursue ‘‘an adequate supply of money and authority’’

(Benson 1975) to carry out their services. In contrast to the private sector, under

competitive bidding, NGOs compete not only for resource support, but also for

power and status within Hong Kong’s social policy network.

Given that Hong Kong is a rapidly aging society, services for the elderly are

becoming increasingly essential. Such a situation provides robust prospects for

NGOs that serve the elderly. Successful bidders will be able to expand their market

shares and maintain a clear service domain of high social importance. Moreover,

they are considered experienced and trusted agencies for elderly services, and their

ability to meet the stringent requirements of competitive bidding gives them a

positive public image. All of these factors translate into a better reputation and

brand name in the field of social welfare and a higher social status.

Some NGOs actively make good use of competitive bidding as ‘‘a good chance to

develop, not limit, our activities according to our mission’’ (Tian 2009, p. 140). On

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the other hand, a failure in bidding sometimes translates into doubts regarding

organizational capacity and the managers’ leadership. ‘‘Every time, when we failed

in bidding, the staff in my agency felt very frustrated’’ (Tian 2009, p. 140).

In addition, the market share will translate into policy influence. A case in point

is the Elderly Commission, the HKSAR government’s policy advisory committee

on eldercare. Currently, among the 18 non-governmental members with different

backgrounds and professions, at least two members are invited by the government

from tender-winning NGOs, as they are assumed to understand the service needs of

the community well. These NGOs become integrated into the system and acquire

the power to influence policymaking directly. In other words, successful NGO

bidders can pursue a wide array of business and financial opportunities to enhance

their political-economic capacities.

Feuds in the NGO Sector

Several NGOs, especially the small ones, have tried to bid for service projects and

failed. These NGOs stated that some bidding requests such as collaboration with the

medical profession have disadvantaged and marginalized them:

Large organizations can mobilize resources, e.g., those organizations which

are the parent organizations of hospitals can mobilize doctors and therapists.

They have the advantage when bidding for services like care homes for the

elderly. (CPU 2004, Case W14)

The system of Competitive Bidding seemed to marginalize small NGOs with

its great emphasis on value-added services or track record. (Written

Submission to LSGIRC 2008, No. 001)

From a small NGOs’ point of view, they are treated like small convenience

stores, whereas large organizations are treated like supermarkets. Smaller stores will

eventually be forced out of the market by supermarkets that can afford to set lower

prices due to economies of scale and monopolies. Thus, fair competition is under

severe challenge.

Disputes among successful bidders exist. Several large organizations have been

named and blamed in the welfare field as being ‘‘too aggressive’’ in competitive

bidding. The previous mutual sharing of information and experiences among the

social workers and among the organizations has been hindered.

I see that the effect of this competition among organizations is bad. Social

workers now do not share experiences… They do not want to teach proposal

writing skills and do not want to reveal their ideas and problems… This is

really a policy of disintegration rather than one of creating harmony and

cohesion in society. (CPU 2004, Case W01)

Under the old subvention system before 1999, the government was committed to

reimburse actual expenditure. Operational conditions of different NGOs were,

therefore, relatively equal. NGOs were willing to share information and experiences

due to their professional mission to serve, and the lack of competition. However,

Voluntas (2014) 25:1214–1234 1225

123

under competitive bidding, a Matthew effect (Merton 1968) which states that the

rich get richer and the poor get poorer has emerged. The NGO sector is being

stratified within the social policy network in terms of whether they participate in

competitive bidding or not, and whether they are successful in bidding or not. The

relationship among the NGOs, as well as the relationship between the NGOs and the

state, or the structure of the policy network, has been reconfigured. Hitherto mutual

support has been replaced with suspicion and distrust.

Deficiencies in the Legitimacy of Resource Allocation

As mentioned above, the ultimate goals of the competitive bidding, which is a

procedural instrument, are to gain support from policy actors within the network

and to legitimize the government’s decisions on resource allocation. The

legitimacy of the decision depends very much on the implementation of a

rational assessment procedure to select the best service provider. Unfortunately,

NGOs point out that the current procedure still lacks transparency. For instance,

the tender notice indicates that the tendering agency ‘‘is not obliged to accept the

tender with the highest mark or any tender’’ (Social Welfare Department 2012b).

While this may seem reasonable for the government as the service purchaser, it

gives the impression that the government reserves its discretionary power to make

the final decision, just like in the past. In this context, apart from structural

privileges such as organizational scale, as well as experience and reputation in a

specific service domain, long-term collaboration with the government and the

government’s trust and faith in the bidder are considered to be crucial factors in

successful bidding (Tian 2009). However, because of the lack of clear criteria for

approval and the lack of feedback and suggestions for improvement for bidders

who lost the tender, NGOs speculate on the government’s decisions all the time.

Moreover, the outcome (i.e., the entry of very few new service providers)

contradicts the stated policy objectives of attracting new service providers and

advancing the welfare mix.

All of these issues raise questions about the procedural justice of competitive

bidding. The suspicious attitude toward the government’s awards that this situation

generates, without a doubt, impair the legitimacy of the decision.

People gossip about what Organization A has traded-into get a particular

project…. Clarifying what the Social Welfare Department is looking for and

showing fairness in project allocation will bring the NGOs relief from agony

and mistrust.’’ (CPU 2004, Case W08)

In addition, there are other criticisms on competitive bidding, such as salary cuts

and job insecurity arising from price competition among NGOs (Cheung 2000).

These also arouse strong resistance to competitive bidding among social workers,

further eroding the legitimacy of the decision.

1226 Voluntas (2014) 25:1214–1234

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Conclusion and Discussion

The present study adopts an innovative integrated framework of policy network and

instrument theory to examine how competitive bidding has been utilized by the

government to legitimize its decisions on resource allocation through a reconfig-

uration of its power and resource relationships with welfare NGOs, using Hong

Kong as a case study. This framework is rarely adopted due to a general tendency to

focus on cost containment (Savas 2000) and service quality (Buckingham 2009),

possibly due to a relatively narrow understanding of competitive bidding as a

financing initiative. Up till now, there has been also very limited work done on the

political consequences of competitive bidding such as state-society relations

(Milbourne 2009), especially in non-Western welfare states.

Hong Kong is a typical case of Asian residual welfare regime with a semi-

democratic structure. Though the state is the main funder for public welfare, its

welfare role remains residual as the public welfare is merely to help those least able

to help themselves. The checks and balances of powers by the elected legislators,

even the directly elected ones, are mainly in the form of monitoring other than

initiative (Goodstadt 2013). Both the introduction and outcomes of competitive

bidding in Hong Kong, similar to or different from the practices in Western

countries, are highly associated with these residual and semi-democratic

characteristics.

Regarding the introduction of competitive bidding, drawing upon policy and

tender documents, the current study identifies the twin purposes of competitive

bidding in Hong Kong. Firstly, in terms of the sustainability of public finances,

competitive bidding was adopted to bring the price of social care down under the

best use of purchasing power (Coopers and Lybrand 1995), to involve societal

capital, and to maintain the residual welfare role of the state in a rapidly aging

society. Secondly, in terms of political legitimacy, it was applied to legitimize the

government’s award decisions, to regain credibility through an open procedure

within the social policy network, and to demonstrate the semi-democratic state’s

accountability in providing responsive welfare services to the public. These

considerations on economic cost and political legitimacy are in essence similar to

the motivations for New Public Management reform in the Western welfare states

(Flynn 2000).

The implementation process of competitive bidding was more complex. As

mentioned, the Hong Kong government relies on welfare NGOs to deliver welfare

services to citizens. Given the strong opposition from the NGO sector on the

introduction of competitive bidding, the government only applied it on a small scale

to acquire NGOs’ support to this radical change. The restricted range of application

of competitive bidding reflected the crucial role of welfare NGOs in Hong Kong’s

residual welfare system. And it reflected the then importance of partner NGOs’

recognition and support within the policy network, and the existence of political

pressure over the semi-democratic authority as well. All of these were also good

evidence of the importance of the legitimization function of competitive bidding in

Hong Kong welfare regime.

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The implementation of competitive bidding in Hong Kong resulted in similar and

different policy outcomes compared with international experience. After conducting

a thorough documentary review of the 127 written submissions on welfare

subvention and competitive bidding from various policy actors in 2008, we come to

the conclusion that the significance of competitive bidding in Hong Kong is

symbolic rather than substantial, i.e., it has changed the mindset of NGOs from

having a sense of stability and security to developing a strong sense of crisis and a

competitive spirit; but has not brought about a better welfare mix and the legitimacy

of resource allocation decisions.

In the economic sphere, the cost of service units under competitive bidding is

lower compared with those of their counterparts under the recurrent subvention

system, which is in line with international experience (Quiggin 1996; Savas 2000).

However, it seems that most of the cost saving is not gained from better

management or service enhancement under the pressure of market competition

(Hood 1991; Pollitt 1993), but from staffing cuts or mobilizing agency resources.

Apparently, both the private sector and small and new NGOs are subject to the

government’s distrust of their economic and professional capacity to provide quality

services, since well-established and large NGOs obtain the majority of the service

contracts under competitive bidding. The results evidence the advanced status of

welfare NGOs, especially the established ones, within the social policy network.

And moreover, there is only a little achievement in advancing the welfare mix in

terms of the participation of new actors.

Compared with the economic consequences, the political significance of

competitive bidding for power structure and welfare role should worth more

attention in Hong Kong.

In the colonial administration, welfare NGOs and their directors were perceived

as local Chinese elites and essential for supporting colonial governance (Carroll

2005; Sinn 2003). For pragmatic consideration, the colonial government had

engaged the NGO sector, through the umbrella and representative organizations like

HKCSS, as a partner in welfare planning and social policy making (Lee 2005; Lui

2010). After the Asian financial crisis and sovereignty handover in 1997, the

HKSAR government has suspended the formal and regular planning exercises after

1998 due to fiscal austerity and the change in government legitimacy. Welfare

NGOs and their directors have lost their partnership and elite status in Hong Kong

social policy network (Ho et al. 2010; Lee 2012; Tsui et al. 2012). Moreover, the

implementation of competitive bidding since 1999 has introduced direct compe-

tition among individual NGOs for the government’s contracts. And in various

forms, a part of the state’s financing responsibility has been shed onto NGOs (e.g.,

organizational resources), their employees (e.g., salary cut) and even the service

users (e.g., fee charging). NGOs have increasingly interests in lobbying for

government’s expansion of social policy and service provision. Because this

expansion means higher availability of contract funding that NGOs could obtain

(Smith 2010). Thus, resource access and policy influence have been the most visible

evidence of the privileged status of a NGO. Less formal and regular lobbying

channel of semi-democratic regime in Hong Kong with NGOs’ higher lobbying

1228 Voluntas (2014) 25:1214–1234

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interests resulted in more keen competition for power and influence within the

policy network.

In contrast to NGOs’ less power but more responsibility, the state is taking

advantage of its purchasing power to further expand its political power in the policy

network. Theoretically, allocating resources through a transparent competitive

bidding process should be able to achieve greater fairness in welfare services

(Sellick 2011). In this process, the government is expected to be accountable

through providing sufficient information about criteria and a rationale for the

selection. The accountability requirements can balance and restrain the state’s

power associated with purchasing (Gamble 1994; Schedler et al. 1999).

However, during the period under study, the normal practice of the Social

Welfare Department was to provide prospective bidders with guidelines on the

assessment criteria, but neither explanation of the rationale for awarding decisions,

nor any feedback, to unsuccessful bidders (LSGIRC 2008). Thus, compared with the

old assignment practices, competitive bidding has not made great progress in

transparency and accountability in the resource allocation exercise. In semi-

democratic Hong Kong, NGO sector was still without a consolidated democratic

mechanism to hold the government accountable for its decisions about resource

allocation and receive responsive suggestions.

More importantly, because of the government’s strong purchasing power, the

introduction of new social programs depends primarily on the government’s own

resource allocation exercises (LSGIRC 2008, p. 91), or to be specific, the political

inclination to develop social welfare. The intermediary function of the HKCSS has

been further sidetracked when NGOs have to compete with each other (Lee 2005)

and impose less political pressure on the state. The semi-democratic government

monopolies the decisive power of policy formulation and corresponding financing

arrangements. Successful bidders, which are typically large NGOs, increasingly rely

on the state for more political power (e.g., membership of policy advisory

committee) and economic opportunities (e.g., new service programs) within the

social policy network. On the other hand, small and new NGOs are in a

disadvantaged position in their pursuit of equal status and power in service delivery

and policy making. A tension between competition and collaboration among NGOs

has arisen.

Overall, after the implementation of competitive bidding, a stagnant account-

ability mechanism, a closed network with a few policy actors, and fragmented

power of the NGO sector, made the power of semi-democratic state expands further.

Policy actors’ failing and rising power, status and policy influence in the social

policy network affected their own perceptions of the effectiveness of competitive

bidding. The semi-democratic state’s residual welfare role and accountability of

social policy making have long been questioned. The introduction and implemen-

tation of competitive bidding for resource allocation do not appear to help the state

regain credibility. On the contrary, the further residualization of state’s welfare role,

as well as the absence of accountability for award decision, induce more legitimate

deficit, which are in contrast with the function of competitive bidding as a

procedural instrument.

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The present study has limitations. Empirical research on the management of

social service NGOs as well as on civil society development in Hong Kong is scarce

prior to the reform in the mid-1990s (Chan 2012). At that time, the management of

social service NGOs was simple since all recognized operational cost was fully

reimbursed by state subsidies. As a result, this study has to rely heavily on policy

actors’ subjective judgments rather than on evidence-based baseline research when

comparing the situations before and after the implementation of competitive

bidding.

Moreover, policy actors’ opinions were mainly drawn from their written

submissions in the subvention policy review of 2008 (LSGIRC 2008), and were

compared with other empirical studies (e.g., CPU 2004). Each of these studies has

its own unique research objectives and design, possibly affecting data consistency.

On the other hand, there is an empirical advantage in that the data could represent

the different perspectives and realities in the Hong Kong social welfare field back

then.

The present study highlighted political significance, as well as economic

consequences of competitive bidding in Hong Kong, which is a typical case of a

semi-democratic regime with developing welfare system in Asia. Without a

consolidated democratic structure and commitment to welfare development,

competitive bidding as a policy instrument aiming at rebuilding governance

legitimacy in the midst of policy actors result in a continued legitimate deficit in

Hong Kong. The credibility of both the policy-makers and their award decisions

remain in danger. It is the lesson on welfare democracy for other Asian countries

when introduce competition in resource allocation in welfare.

Appendix

See Tables 1 and 2.

Table 1 Comparison of welfare units awarded under competitive bidding (as of the 30th of June, 2001)

Home care Meal delivery EHCCS

Number of

units

25 25 18

Mode of

allocation

Bidding by NGOs only

Collaboration is encouraged

Private sector is allowed to bid

Collaboration is encouraged

Bidding by NGOs

only

Collaboration is

encouraged

Bidding

result

8 NGOs operating 25 units 9 contracts operating 25 units,

awarded to 6 NGOs, 1 private

company and 1 NGO-and-

commercial alliance company

14 NGOs operating

18 contracts

Source Elderly Branch, Social Welfare Department 2001, Paper No. CB(2)2094/00-01(01)

EHCCS enhanced home and community care services

1230 Voluntas (2014) 25:1214–1234

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