USING CONTRACTS TO GOVERN HYBRID PUBLIC-PRIVATE PARTNERSHIPS: A CASE STUDY OF AUSTRALIAN PRISONS

Linda English
university of sydney

Jane Baxter
university of nsw

Abstract:
ABSTRACT

USING CONTRACTS TO GOVERN HYBRID PUBLIC-PRIVATE PARTNERSHIPS: A CASE STUDY OF AUSTRALIAN PRISONS



Drafting contracts for public private partnerships (PPP) that achieve policy objectives and facilitate adaptation to changing circumstances over their lengthy terms present governments with numerous challenges. Transaction Cost Economics (Williamson, 1981; 1991; 2005) provides a framework in which to analyse five hybrid Australian PPP prison contracts, three of which were executed in the 1990s, and two in 2003. The need for parties to develop a trust-based approach to managing the ongoing relationship (Stephen and Coyte, in press; Broadbent et al., 2003) results from incomplete contracting. The specific contractual elements examined are (i) risk allocation, (ii) specified service standards, (iii) payment and incentive mechanisms, and (iv) management and control structures. Our analysis indicates that uncertainty, bounded rationality and opportunism have been mediated in, and through, changing contractual templates, and “elastic” contractual mechanisms promoting “gap filling” (Williamson, 1991). The emergence of relational contracting has facilitated the development of new governance practices in the PPP contracts examined, in response to a broader debate about inadequacies in their management.