It happened in an internet forum that someone tried to use sub-contracting as an example of how privatization doesn’t work. However, sub-contracting doesn’t work as an example of privatization.
The State of California, in trying to manage a state park owned by the state government, hired AIG to manage the state park. AIG hired private firefighters to perform the firefighting service in the state part, at the behest of AIG, at the behest of the State of California. Those private firefighters apparently didn’t do a very good job, and so after being paid by the state (ultimately) to do a state job on state land it is considered a failure of privatization.
A real example of privatization would not have the state involved. These private fire fighters would be hired, not by California (via AIG) but by the private owner of the private land.
The two do not compare. No matter how many intermediary agencies there are between the top and the bottom, the top level agency, the one that initiates the sub-contracting, sets the rules for the entire chain downwards.
This is evident in the way companies that get most of their business from government contracting are run. Those companies have an internal structure and practice that is in many ways as bureaucratic as the government. They may be a little less bureaucratic since they do not have to follow the full range of regulations, but adherence to many government policies are written into contracts to ensure that sub-contracting doesn’t interfere with social planning objectives.
In the private sector sub-contracting also means that the goals of the top level company are the goals that determine all contracts down the line. The difference is that the goals in the private sector are all the same, best product for the lowest price. Government contracts aren’t written to make money for the government but to adhere to some policy driven standard, thus ensuring that there will be conflicting goals in government contracting.
When a contractor fails to deliver what should be the desired result, but stays entirely within the contract, it is not the fault of a private system. It is the fault of a public system that, in this case, happened to use a sub-contractor. The fault is still in the public sector.
Sub-contracting, contracting out to private companies government functions, is not an example of the free market at work. It's more correctly referred to as corporatism.