Exploring Contracts as Reinvented Institutions in the Danish Public Sector

Abstract

Contracts have been on the agenda in public sector reform in most OECD countries. In Denmark, contracts have been considered as one of the most important tools in reorganizing the public sector. The article examines the implementation of contract agencies in central government in Denmark during the 1990s. First, a review of contractual theory distinguishes between ‘hard’ and ‘soft’ contracting. Second, recent developments in contracting in Denmark are examined, and three phases of contract agencies are identified. Contracts have been supported by other tools for reporting on performance like annual reports. Third, it is argued that Denmark has put co‐operation and negotiation before more strict management and control. The Danish experience can be seen as an alternative to the principal‐agent model. The article finishes by discussing the pros and cons of the Danish approach, and suggests that although the pragmatic approach has merits, it may lead to problems in the future concerning the credibility of the whole project.