The goal of this paper is to analyse the challenges involved in contracting out policy analysis with the example of performance budgeting reform in Estonia in 2008-2010. The Ministry of Finance of Estonia has sought to prepare a major change in the budgeting system by contracting out the analytical preparation of different aspects of the reform to various private sector organizations. The case study seeks to identify the challenges and pitfalls involved in contracting out the preparation of such an extensive reform, which touches upon the core activities of the public sector. The Estonian experience shows that such a reform strategy can run into serious problems: First, since different phases of the reform have been prepared by different private sector organizations, the reform plan has become fragmented and inconsistent. Second, because of the fragmented nature of analysis, where the actors in subsequent phases have only limited information about what was experienced during the previous phase of reform preparation, the feedback loops of analytical learning have been limited. Third, since the analysis has been contracted out, the analytical capacity building of the Ministry of Finance officials has been constrained. Fourth, contracting out has led to high transaction costs and reduced the time the ministry officials involved have available for substantive analysis. Fifth, the need to fix the terms of contracts has constrained further deliberations on the reform and analytical input from other public sector organisations.
