A survey of the contracting out of hospital ancillary services within health districts in the National Health Service, in England and Wales over the period 1985 to 1991, reveals a number of patterns including a north–south divide and a rural–urban split. However, apparently similar districts reveal widely differing experiences of contracting out. Detailed case studies of contracting out in two such districts are used to demonstrate the value of a contextually sensitive approach in understanding this diversity of outcomes. Within each district there is a complex evolution of policy involving interactions between numerous actors and their distinctive local contexts that serve to form differing organisational cultures.