The New York website City Limits has this terrific article about recent and emerging scandals of privatization and delegation of various city services. A very good overview, worth taking the time to read.
The latest scandal that occasioned this coverage involves CityTime, an outsourced payroll software system, which involves hundreds of millions, almost a dozen people now facing fraud charges, and two on the lam with millions in stolen funds. The article then a number of other privatization nightmares - cost overruns by a factor of ten, millions paid to consultants with no measurable results or benefit, and so forth. Municipal outsourcing has always been a feature of American urban management, but recently it has reached an epic scale - NYC alone now dishes out $10.5 billion to private contractors with little competition in the bidding and little accountability for those who lock in contracts. As the article points out:
"Free-market rhetoric aside, there is often little real competition under privatization. A national survey of local governments found that in most locations and for most public services, the average number of private firms that could possibly take on government work was less than two—not exactly perfect competition."
Accountability is often absent - there are insufficient mechanisms to punish contractors for malfeasance or shirking, and there is little transparency in the process or the final products.