Explaining contracting effectiveness
MetadataShow full item record
The privatization trend has been one of the most significant developments in public administration over course of the last several decades. Experts have produced a vast literature on the issue of how to manage the process of contracting for services. The dominant perspective in this literature views contracts as discrete, arms-length transactions between a principal and an agent. To manage such transactions effectively, public managers need to foster competition, develop rigid contract specifications, rigorously monitor performance, and impose sanctions to rein in an unresponsive contractor. A newer perspective on contracting, often called relational contracting, has surfaced in the literature to rival the conventional wisdom on contracting for services. Relational contracting points to trust, cooperative problem solving, alternative means for resolving disputes, and frequent communication as the determinants of success in contract for services. The policy implementation literature also offers its own set of explanatory variables, including political support for contracting out, resource munificence, and complexity of implementation structures. This study develops inductively from these literatures a comprehensive explanatory model of contracting effectiveness. The model is tested using multivariate statistical techniques and data from over four hundred contracts between local governments and private contractors. The results reveal that nearly all of the determinants of contracting effectiveness are those derived from previous research on relational contracting and policy implementation. Trust, joint problem solving between the parties, reliance on alternative means for resolving disputes, in-depth knowledge of the workings of service delivery, and contract length have a positive additive impact on contracting effectiveness. Political support for contracting out and resource munificence have positive additive effects, as well, while the number of subcontractors involved in service delivery and task uncertainty have negative additive effects. In short, the findings suggest that successful contractual relationships are generally not discrete, arms-length transactions that are programmed and controlled. Instead, successful contractual relationships tend to be based on trust and managed in a cooperative manner that emphasizes adaptive decision-making, problem solving, and learning. The study also finds enough evidence of interaction effects among independent and situational variables to warrant further research on a contingency approach to contracting.