Synthesis of Relational Practices for PPP Contracts and Their Linkage with Governance Mechanisms

Abstract

Contractual governance is considered sufficient to govern particular types of exchanges. In the presence of well-known transaction hazards, however, relational governance is increasingly viewed as a necessary complement to limit transaction hazard risks in many circumstances such as public-private partnership (PPP) arrangements. Consequently, PPPs should employ different governance mechanisms such as trilateral governance and shadow of the future to achieve this complementarity. Relational contracting, which aims to govern transactions through mutual relationships within a project’s overall contractual framework, offers a specific avenue for this purpose. In particular, relational practices such as partnering and regular meetings between the client and concessionaire can be included in a project contract to improve relational governance. Different researchers have previously performed in-depth reviews and syntheses of governance mechanisms, but a similar synthesis related to relational practices is missing from the literature. Also, in theory, relational practices specified in contracts can act as enablers of governance mechanisms in PPP projects, so this linkage needs further investigation. Consequently, a review of the literature was completed to synthesize relational practices for inclusion in PPP contracts, and these practices were also linked with well-established governance mechanisms. Six categories of contractual relational practices were identified: communicating/negotiating, partnering, resolving conflicts, monitoring, executing changes, and allocating risks which were further linked with governance mechanisms. For instance, the trilateral governance mechanism was linked to dispute review board, mediation, and arbitration practices. This research provides insights into effective contractual designs by identifying relational practices that can trigger governance mechanisms and promote contractual and relational governance complementarity in PPP projects.