The Contracting Quandary: Managing Local Authority–VNPO Relations

Problems with competitive transactional contracting raise the possibility of relational contracting as an attractive alternative for managing local authority–VNPO (voluntary non-profit organisation) relations. This empirical study of 45 relational social service contracts examines the conditions under which advantages such as flexibility and social capital development emerge as opposed to dangers of political abuse, defiance and resource frustrations. Findings suggest that successful relational contracting requires partners whose professional and management reputations inspire competence trust and whose commitment encourages goodwill trust. Decisions between competitive transactional contracting and relational contracting present difficult dilemmas. The costs and benefits of relational contracting need to be weighed against those of transactional contracting. At the same time there are political and ideological pressures, as well as public service norm constraints.     

Exploring Contracts as Reinvented Institutions in the Danish Public Sector

Contracts have been on the agenda in public sector reform in most OECD countries. In Denmark, contracts have been considered as one of the most important tools in reorganizing the public sector. The article examines the implementation of contract agencies in central government in Denmark during the 1990s. First, a review of contractual theory distinguishes between 'hard' and 'soft' contracting. Second, recent developments in contracting in Denmark are examined, and three phases of contract agencies are identified. Contracts have been supported by other tools for reporting on performance like annual reports. Third, it is argued that Denmark has put co-operation and negotiation before more strict management and control. The Danish experience can be seen as an alternative to the principal-agent model. The article finishes by discussing the pros and cons of the Danish approach, and suggests that although the pragmatic approach has merits, it may lead to problems in the future concerning the credibility of the whole project.     

PUBLIC‐PRIVATE PARTNERSHIP CONTRACTS: A TALE OF TWO CITIES WITH DIFFERENT CONTRACTUAL ARRANGEMENTS

This paper analyses regulation by contract in public‐private partnerships (PPPs) for infrastructure services. Although the benefits of competition for the market and subsequent regulatory contracts are recognized, the literature also identifies contract design failures. When considering these limitations, it is useful to distinguish between contracts associated with purely contractual PPPs (concessions) and contracts for institutionalized PPPs (mixed company). Two cases from the Portuguese water sector are used to illustrate problems arising in the preparation of public tender documents: the ‘best’ bidder is often not the winner. Often, risks are not allocated correctly nor is effective monitoring ensured. Comparisons between the two types of contracts show how external regulation can be useful in mitigating contractual problems. This examination of bidding procedures and contract design yields several implications for policy‐makers; in addition, the study presents recommendations for improving regulatory contracts.     

Risk management in gathering economies

This article extends the literature on the interplay of environmental risk and welfare into the setting of coastal fisheries gathering. It reviews the sources of covariate and idiosyncratic production risk creating income shocks to gatherers and discusses the institutions that best mediate shocks across different settings. We rely upon a principal-agent framework between larva-gathering agents employed by boat-owning principals who supply seed to shrimp farms. Two datasets from a Central American fishery are used to test the hypotheses concerning contractual performance across environments. Which contract provides the highest mean income (and variation) depends upon the underlying production catch data. In the farm production records dataset with strong catch trends, a simplified relative payments contract would perform better in reducing income risk in locations of stronger covariate shocks, but at the price of significantly lower mean earnings for gatherers. In areas of idiosyncratic shocks, such as localised water pollution, piece-rate contracts would perform better. Objective risk exposure to gatherers was lower under relative payments, supporting the hypotheses. Actual results in the Honduran case were conditioned by imperfect labour markets and the substitutability of hatchery larva.     

A replication of “Contracting out: For What? With Whom?”

In the 1980s, governments around the world adopted New Public Management ideas about inserting competition into government as a way to improve the performance of public organizations. In many nations, contracting out was one method of making governments more businesslike. Yet, there have been few studies of how government contracting behaviors have changed since the early 1980s. We replicate Ferris and Graddy's classic 1986 study of local government production and sector choice to assess how public procurement has changed over the past 35 years. Our findings show that today, contracting out is more commonly used across 25 local government service areas. In contrast to the original study, much of the growth has been in government-to-government contracts. For profit firms are also winning more contracts for high transaction cost work, while nonprofits are receiving fewer government contracts in nearly every service area. Our analysis suggests that contracting out remains of the highest importance in 21st-century governance and that additional research is needed on how to manage contracts to achieve the best value.     

ON THE PERFORMANCE OF COMPETITIVELY TENDERED, PUBLIC SECTOR CLEANING CONTRACTS

Quantitative analysis of competitive tendering and contracting typically focuses on their effect on the cost of providing public sector services. In this article we turn to the systematic factors that appear to influence the performance of cleaning contracts. This is defined as compliance with contract specification, public perception of service quality and other qualitative measures of service characteristics as observed by the contracting authority. Our analysis attempts to isolate particular features of contract design, monitoring and enforcement that influence performance positively or negatively. Econometric results based on a sample of public sector cleaning contracts suggest that contractor selection procedures and contract enforcement mechanisms have the greatest influence on performance.     

Contracting out local road and park services: economic effects and their strategic,contractual and competitive conditions

ABSTRACT

The economic rationale for contracting out local services is increasingly contested by empirical research. This article aims to contribute to this literature, first by scrutinising the economic effects of contracting out in local road and park services and, second, by exploring how characteristics such as markets, contracts, municipal strategies and contracting history influence these outcomes. Drawing on original survey data from Danish municipalities, we find that competitive tendering has on average reduced costs. Further analysis shows that savings are not associated with lower quality, thus indicating that ‘quality shading’ was not taking place. Another finding is that municipalities that repeatedly contract the services experience smaller savings, suggesting that competitive tendering is subject to declining marginal returns. Finally, we find that larger municipalities and those emphasising expenditure cuts realise larger savings, whereas the characteristics of markets and contracts do not seem to explain variations in cost savings.     

CONTRACTING IN THEORY AND IN PRACTICE: SOME EVIDENCE FROM THE NHS

The contract is the main mechanism for governing transactions within public sector'quasi markets'. This article explores the nature of the contracting process in the light of new empirical data from a qualitative study of the development of contracting for hiv / aids services within the National Health Service. These data are compared with four possible models of the contracting process emerging from the academic literature, classical, relational, regulated and pseudo contracting.
The White Paper on the nhs reforms uses a classical concept of contracting, in which purchasers are represented as making well informed and unrestricted choices between competing options. This bore little relation to the process observed within the four purchasing organizations studied. Instead, elements of all the models were observed, with the dominance of any one model varying with different situations, times and localities. Competition was only patchily evident, with purchasers more commonly encouraging co-operative relationships between providers to preserve stability. Attempts to utilize the contract process to mould and reconfigure services were often hampered by restrictions imposed by regulations and slow implementation of new mechanisms. Contracting was also adversely affected by rapid organizational change and lack of adequate information. It is concluded that contracting in the nhs is an evolving process and has yet to achieve its full potential as a management mechanism.     

Endogenous Determinants for Renegotiating Concessions: Evidence from Local Infrastructure

The engagement of local government in public–private partnerships (PPPs) for the provision of infrastructure and public services is a global trend. Light rail services, water systems, waste management systems, schools, sport centres and social housing are simply a few examples of sectors in which the private sector is becoming more actively involved with local authorities. Most of these engagements are conducted through the use of mixed companies and contractual concessions. However, both of these uses suffer from a major shortcoming – renegotiations. Contracts are often renegotiated within a few years of being signed, and some evidence reveals that the results might not protect the public interest. This article aims to understand how and why renegotiations of local concessions occur by examining the specific characteristics of contracts (endogenous determinants). To illustrate the discussion, a case study of a light rail system is analysed, exemplifying the effect of a contractual renegotiation. The authors argue that contractual renegotiation can be useful in decreasing contract incompleteness, but a poorly designed contractual clause can allow for opportunistic concessionaire behaviour.     

Redesigning the Hollow State: A Study of Florida Child Welfare Service Reform through the Lens of Principal-Agent Theory

While principal-agency theory has greatly facilitated our understanding of governance and management in the hollow state, close examinations of how system designs affect agency problems has been rare. The purpose of this study is to explicitly investigate the effects of different contract configurations on agent shirking, which is a common problem in third-party service delivery arrangements. Florida's recent statewide privatization and reconfiguration of its child welfare service delivery system are analyzed for this purpose. Data were collected through intensive document reviews and interviews with the public managers and the contract agents who were involved in the reform. Major structural components of the redesigned system (such as overall contract configuration, procurement policies, oversight mechanism, payment methods, and vendor governance structures) are examined and compared with those of the old system. The results of the analysis suggest that the Florida reform installed several structural devices intending to curb agent shirking that plagued the old system. The most significant changes involve a transition of the contracting scheme from a fragmented quasimarket based on dyadic contracting to an integrated service network based on a managed care model, a shift of the focus of the contract oversight from compliance and process to service outcomes, and a transfer of programmatic and financial risks and uncertainties from the government to vendors. Further, the findings of the study reveal some unintended consequences of the reform. For example, the reconfigured system that empowers communities also promotes local parochialism that hinders the government's statewide policymaking ability. The reform that consolidates contracts into the hands of a few large vendors under a standardized contract management system unites the vendors around their common interests to confront their government principal.     

Contracting Out Local Government Services to Private Agents: An Analysis of Contract Design and Service Delivery Performance in Ghana

Contracting out is generally justified on the principle that as governments contract out part of their responsibilities in service provision to private agents, they harness the power of market competition which leads to efficiency in service provision. In working with private contractors, local governments (LGs) face problems related to agent opportunism, while agents also face risks such as dereliction of payment responsibility by LGs for services delivered. The literature shows that these problems are addressed through a web of contractual arrangements. Using agency theory, this study investigates the relationship between contract design and quality of services delivery in three Ghanaian cities (Accra, Kumasi and Tema). The study found a surprising negative correlation between contract document and agents' performance. The paper concludes that effectiveness of contracting out documents depends on contract management capacity of government administrators. In its absence, LGs that contract out are exposed to risks. The paper uses the findings to reflect on the inherent deficiencies in agency theory and Africanist literature on patronage.     

THE PRACTICE OF CONTRACTING IN PUBLIC PRIVATE PARTNERSHIPS: TRANSACTION COSTS AND RELATIONAL CONTRACTING IN THE IRISH SCHOOLS SECTOR

This paper explores the practice of contracting in public private partnerships (PPP). Focusing on the first Irish PPP to provide secondary schools, it draws on perspectives from transaction cost economics and socio‐legal theory. It finds that the ex ante contractual setting was undermined by pushing forward with the PPP before conducting an adequate level of project appraisal. It explores the experiences of key stakeholders in the ex post contracting stage and concludes that the conduct of contracting practice was not characterized by the shift to relational contracting expected under PPP. Whereas this approach to contractual governance did not hinder the development of broadly trusting relations between the client and contractor, this was not manifest in terms of relations between the contractor and schools. A significant degree of conflict was evident in some schools‐contractor relations, something which can be attributed to sources of transaction costs, including incomplete information, bounded rationality and uncertainty.     

Lessons Learned from Public and Private Contract Managers for Effective Local Government Contracting Out: The Case of New Jersey

To date, very few studies have explored practical strategies for exercising effective financial management of local government contracts through two main stakeholders’ perspectives of the contracting system at the same time. Employing a series of semi-structured interviews with public officials and private contractors in New Jersey, this study attempts to fill this gap in the scholarship. The finding of this study suggests that government agencies should pay greater attention to competitive bids without favoritism, contract specificity, a statewide performance database, sufficient staffing with well-trained personnel, strong leadership, team-based structures, two-way communication, and evaluation based on both qualitative and quantitative values.     

The Effect of Formal and Informal Contracting Mechanisms on Implementation Performance in the U.S. Federalist System

The relationship between contract management capacity and implementation success in local government contracting is well established. However, less is known about how specific contract mechanisms are linked to this success. This study uses implementation of the Energy Efficiency and Conservation Block Grant Program to examine the use of formal and informal contract management techniques in the implementation of energy projects. The use of formal contract mechanisms, such as full and open competitive bidding, contact rescission and outcome-based performance measures, exhibits a statistically significant effect on implementation performance. The findings advance contracting theory and have practical implications for local government contracting and implementation success in fiscal federalism.     

Top Civil Servants Under Contract

This article focuses on the introduction of the new top civil servant contract system in New Zealand and Norway. Even though both countries introduced contractual arrangements at the same time, the content of the reforms and their scope, scale and intensity are very different. The New Zealand reform was more radical and internally consistent. In contrast to an aggressive and thorough implementation in New Zealand, the contract system was implemented more cautiously and reluctantly in Norway. The effects of the reform are ambiguous and uncertain in both countries. A transformative perspective focusing on the interconnection between international administrative doctrines, national political-administrative culture, and polity feature is used to understand why contracts reforms have different contents, effects and implications.     

Contracts,resource use and productivity in sharecropping

This article identifies the contractual terms in sharecropping that result in efficient use of resources. Evidence is then presented from Pakistan to comment on the manner in which landlords ensure that sharecroppers fulfil the terms. It is shown that landlords in general specify contract terms that encourage sharecroppers to adopt new techniques of production. Productivity comparisons are also made for farms under different tenancy contracts to conclude that share‐cropping tenancies do not appear to result in output loss even when technology is changing.     

Local Public-Services Provision under Public–Private Partnerships: Contractual Design and Contracting Parties Incentives

When deciding to resort to a PPP contract for the provision of a local public service, local governments have to consider the demand risk allocation between the contracting parties. In this article, I investigate the effects of demand risk allocation on the accountability of procuring authorities regarding consumers changing demand, as well as on the cost-reducing effort incentives of the private public-service provider. I show that contracts in which the private provider bears demand risk motivate more the public authority from responding to customer needs. This is due to the fact that consumers are empowered when the private provider bears demand risk, that is, they have the possibility to oust the private provider in case of non-satisfaction with the service provision, which provides procuring authorities with more credibility in side-trading and then more incentives to be responsive. As a consequence, I show that there is a lower matching with consumers’ preferences over time when demand risk is on the public authority rather than on the private provider, and this is corroborated in the light of two famous case studies. However, contracts in which the private provider does not bear demand risk motivate more the private provider from investing in cost-reducing efforts. I highlight then a tradeoff in the allocation of demand risk between productive and allocative efficiency. The striking policy implication of this article for local governments would be that the current trend towards a greater resort to contracts where private providers bear little or no demand risk may not be optimal. Local governments should impose demand risk on private providers within PPP contracts when they expect that consumers’ preferences over the service provision will change over time.     

THE EFFECTIVENESS OF RELATIONAL CONTRACTING IN A TEMPORARY PUBLIC ORGANIZATION: INTENSIVE COLLABORATION BETWEEN AN ENGLISH LOCAL AUTHORITY AND PRIVATE CONTRACTORS

This article evaluates the factors that shaped the effectiveness of three strategic contracts pursued with private firms by a local authority in the English West Midlands. The contracts generated highly political outputs that supported the council’s defence of the core interests of local residents. The analysis explores the form taken by the contracts; the mechanisms that delivered and integrated them; and the wider structural factors that helped to secure apparently benign contractual outputs. The evaluative yardsticks used to support the analysis were: relationality; flexibility; and performativity. The article argues that relationality is crucial in determining quality in temporary, project‐based organizations. Relationality yields flexibility and effective performance, based on mutual regard and loyalty. The case study highlights the need to explore perceptual gaps between the parties; the importance of the time‐path of relationality; the significance of ‘value residuals’ in incentivizing substantive loyalty; and the potential contribution of zones of flexibility to performance.