The Collaborative Public Manager: New Ideas for the Twenty-First Century

8. Collaboration and Relational Contracting

Chapter 8 Collaboration and Relational Contracting David M. Van Slyke In this volume, the role of the collaborative public manager is the central theme. Government contracting is one area in which collaboration is both praised and vilified. Contracting is a pragmatic tool of governance and the most frequently used form of privatization in the United States. It involves government agencies entering into formal relationships with a third party for the production of goods and/or provision of services. Governments at all levels have increasingly used contracting with other governments, nonprofits, and for-profit firms to deliver a wide range of public goods and/ or services. Fundamentally, the argument is that contracting benefits the government because of competition and market forces (Savas 2000). The associated outcomes are cited as lower costs, higher quality, expertise, and innovation. Those opposed to contracting express concern about government ’s heightened exposure to opportunism, gaps in accountability, and a loss of public management capacity (Sclar 2000). Recent news stories advocating more collaboration in contracting relationships suggest that “top acquisition managers develop [and be encouraged to develop] tight bonds with industry”; that “the process [of contracting ] involves close interaction between acquisition officials and contractors, . . . [recognizing] that there’s no way to be successful without working together”; and that “the focus [of government contracting officers ] should be on creating a long-term relationship between vendors and government officials.”1 Opponents of this approach to contracting suggest that vendors cannot be trusted to execute government’s goals without very specific legal contracts and to engage in less than highly specified contractual relationships would be a dereliction of duty and a failure to protect 138 How Public Managers Collaborate the public’s interest. Those critical of a more collaborative approach to contracting suggest that familiarity (close relationships between government officials and vendors) leads to a lack of competition and creates a relationship of government dependence on the winning vendor, which over time can lead to corruption and a loss of accountability. The public administration literature has tended to treat the topic of contracting in starkly normative and ideological terms, and analysts often draw from a single theoretical framework, such as transaction cost economics or agency theory. A transaction cost approach is often used or at least recommended for deciding whether government should make or buy goods and services based on ease of measurement, observability of service quality , and the asset-specific nature of the product (Tadelis 2002). Similarly, contracts and the manner in which government manages its relationships with vendors have often been framed using agency theory, which in essence provides direction on how a principal (government) can control its relationships with an agent (vendors) in order to reduce opportunistic behavior and achieve goal alignment. Each theory, respectively, requires that a decision be made. First, make the service internal to government or purchase the service through the use of contracts in open markets. And, second, control the agent through the use of incentives, sanctions, and monitoring for purposes of goal alignment or develop more collaborative and trusting arrangements , which may promote alignment but may also result in government being vulnerable to vendor opportunism. An argument heard in the procurement halls of government and written about in public administration journals is that government managers need to become more trusting and collaborative in their contract relationships with vendors. Yet there are a great many historical reasons beyond the scope of this chapter for why this type of relationship has not formally been the norm among rank-and-file government managers. Scholars have increasingly suggested that an alternative contract management strategy that may promote greater alignment and reduce costs is to develop relationships premised on trust and engagement rather than pursue arm’slength transactional forms that are hierarchical and control oriented. Milward and Provan (2006, 26) state that “collaboration and contracting come together with what they suggest economists call ‘relational contracting ,’ [which] is based on trust and reciprocity rather than a written contract that specifies what both parties’ obligations are in great detail.” To effectively manage these relationships, they suggest three points that can be associated with relational contracting. The first is that “competitive contracting (often in a thin market with few sellers) is an impediment to collaboration” (Milward and Provan 2006, 12); second, that “collabora- Collaboration and Relational Contracting 139 tion is essential if a client’s needs are to be met, . . . since no one organization delivers all of the...