it is administering the service. The customers pay the city, not the provider. The city makes sure that the contractors are meeting the requirements for the job. The city tells the contractors how many trucks they want on the road. The city tells the contractors when to start the job, and assesses if they're finished when the contractors say they are.

This is the same kind of situation with building construction. When a city needs to build a new city hall, they don't hire construction workers directly, they contract it out, and administer the process.