Trust and contract completeness in the public sector

Abstract

In this paper, we identify the implications of different levels of contract completeness for the delivery of public services. While numerous factors influence the effectiveness of more or less complete contracts, achieving a win-win outcome - in which both parties to a contract achieve their goals - is in part contingent on the degree of trust between the contracting parties. We explore how varying levels of trust interact with the degree of contract completeness to influence contract effectiveness across different circumstances. In particular, we draw on examples of two types of commonly contracted, but distinctly different public services - refuse collection and social service provision - to illustrate how contracting governments often adapt contract completeness in response to changes in the level of trust with the vendor. We show how contracts become less complete over time as trust evolves between parties, as well how less complete contracts become more complete when trust deteriorates between parties. As such, we explore when contracting is risky for both governments and vendors and how contract relations can be structured to help create win-win outcomes for both.