The Government has introduced legislation to replace compulsory competitive tendering (CCT) with a new regime of Best Value (BV) in local government. Although CCT is to be abolished, competitive tendering is retained as part of the BV framework. The specific role of competitive tendering in BV has not been identified—what are the circumstances that determine whether councils should provide services themselves or seek external suppliers? The authors develop a theoretical framework that may help central and local policy-makers to answer this question. The framework emphasises the joint importance of organizational performance and contracting costs. Practical issues that arise in the application of the framework are also identified.