Contractual framework of private-public partnership: The sui generis nature of PPP as a result of the holistic approach

Abstract

The holistic (comprehensive] approach to the methodological framework for the analysis of public-private partnership is essential presumption for the transformation of the public and private interests from the conflicting ones to the parallel and convergent ones. Private and public interests are to be regarded not as the divided particulars but as the element of the dynamics of PPP as a whole. The holistic approach facilitates interaction which brings new 'added values' in the exercise of the public interest by using the PPP construction: economic, social and political. This concept allows the PPP to 'take the best of both worlds' (the protection of the public interest and solidarity from the public sector, and the entrepreneurial logic from the private sector]. In light of the sui generis structure of mutual relations between the public and the private partner in the PPP framework, the contractual basis of public-private partnership has the character of relational contracts. Relational contracts differ from traditional contracting mechanisms. The parties to traditional contracts have equal information at their disposal, which enables them to define ex ante the terms of the transaction insofar as the consequences of performance or non-performance are anticipated at the time of contract conclusion. On the other hand, relational contracts are incomplete agreements: the parties to relational contracts mutually agree that it is impossible or economically inefficient to define ex ante the possible difficulties and circumstances of the transaction at issue (which is possible in classical contracts]. In this respect, in relational contracts the rationale for commitment is relatively flexible. The public-private partnership agreement is a relational contract. Relational contracts within the PPP framework limit the opportunistic behaviour on both parties and promote the development of their co-operation and exchange of information. Relational contracts are idiosyncratic (unlike traditional contracts which may be standardized and embodied in a specific legal form]. Public private partnerships agreements have to align the principle of hierarchy on which the public partner has based its activities (a high level of administrative control and the lack of economic incentives] with the principles of market economy underpinning the logic and the operation of the private partner.