Governing Danish Agencies by Contract: From Negotiated Freedom to the Shadow of Hierarchy

In the early 1990s the Danish Ministry of Finance initiated an experiment where a few ministerial departments negotiated performance agreements with their agencies. Since then internal contracting has spread and is now nearly universally used in central government. However, a close study demonstrates that in this process contract content has changed dramatically. The early contracts were quid-pro-quo agreements. Agencies committed themselves to improve efficiency but contracts at the same time admitted them increased managerial discretion. The mature contracts are quite different. Departmental ministries have exploited their considerable autonomy to set demands that are related to policy and service levels rather than internal management. Here ministries have adapted to the characteristics of their policy tasks and to the presumed concerns of the target groups dominating their political environment. Building on an analysis of all contracts in force in a 1995, 2000, and 2005 the paper sees this change as a transformation of an ideal type NPM-instrument into a managerial tool adapted to a system where highly autonomous ministers act as unquestioned political executives.