The impact of performance contracting on the financial performance of public universities in Kenya

Abstract

This study focuses on determining the effectiveness of performance contracts in improving the efficiency of financial operations of public universities. Accordingly, the objective of the study is to establish the impact of Performance Contracting on the financial performance of public universities. The study focuses on all the seven public universities over a ten year period to 2009. This ten year period was divided into a five year pre implementation and a five year post implementation period of performance contracting. It was expected that the incomes of public universities would rise dramatically in the post performance contract period and as such the Cost-to-Income ratio would decline significantly reflecting a positive impact of performance contracting on the financial performance of public universities. It was also expected that the net surplus to cost ratio and net assets would increase significantly in the post implementation period and thus reinforce the positive role of performance contracting on the financial performance of public universities. The study finds that there was no significant variation in cost-to-income, net surplus-to-cost and net assets growth in the period before performance contracts implementation when compared to the post implementation period despite the public university industry’s cost-to-income and net surplus-to-cost trends indicating improved cost savings over the ten year period. Consequently, though the findings do show some positive attribution of Performance Contracting to public university financial performance, the results are not conclusive.