Using Contract Consolidation to Improve Performance: Effects of Service Delivery Scale on Nonprofit Provider Efficiency in the Combined Federal Campaign

Abstract

When nonprofit organizations deliver services on behalf of the government, the government agency has the opportunity to select the optimal number of providers to maximize performance. Should more providers deliver services across smaller areas to increase local tailoring or should contracts be consolidated so fewer providers deliver services across larger areas to take advantage of economies of scale? This paper examines a series of contract consolidations aimed at improving the performance and reducing the costs of the Combined Federal Campaign (CFC), the Office of Personnel Management’s workplace giving program for federal employees, which is administered by contracts with nonprofit intermediaries. Using a difference-in-differences analysis based on waves of contract consolidations over time, I find that larger service areas typically had lower giving and costs on a per employee basis. The consolidation process itself tended to decrease average giving further but had no additional effect on costs. Combined, these effects yield no change in costs per dollar raised for larger or consolidated service areas; the benefits of contract consolidation were more modest than CFC administrators had hoped.