Contracting out is currently one of the most prevalent mechanisms of the privatization movement. Understanding its trends and rigorously analyzing its implications is an increasingly salient issue for public management research. This article builds a multi-stage theoretical framework addressing two broad research questions. The first is to identify the array of economic, political, organizational, and institutional factors that may impact a government agency's decision to contract out. The second is to detail the various organizational and environmental factors influencing contractor performance. Particular attention is paid to effective contract monitoring and its relationship to contractor performance.