Managing the relational character of public-private partnership contracts

Abstract

A public-private partnership contract has the character of a relational contract. Relational contracts are incomplete agreements governing transactions where the contracting parties have mutually agreed that it is impossible or economically inefficient to contractually define ex ante possible difficulties and contingencies in the contract implementation, nor the difficulties and contingencies underlying the ex post control of contract performance by a third entity (court or arbitration). Considering the methodology of managing relational contracts, it is essential that the theory of relational contracts does not advocate for the establishment of relational contracts as a separate category of contracts, with specifically designated contractual instruments. This theory defines the relational contract as a category which legitimizes 'the relational mode' of a particular contract. The methodology of relational contracts is important for contracts on public-private partnership as it ensures that the contractual relationship is aligned with the changes in the immediate environment where the PPP contract operates. The aforementioned alignment has two aspects. The first one is the ex ante aspect of the alignment which is primarily aimed at preventing the detrimental effect of such alignment to the public partner's interests. Therefore, the intent to prevent such an effect shall be taken into account when defining the criteria for the selection of the most favorable private partner and the best offer. At the same time, it is essential to establish verifiable standards for measuring the private partner performance in the phase of contract implementation. For this goal to be achieved, it is crucial to specify the subject matter of the private partner's obligations, to establish the priority rank of PPP project objectives, to elaborate on the specific requirements governing the eligibility of private partners to participate in the bidding process, to specify the 'value for money' which the public partner will obtain by the implementation of the contract, and to ensure an adequate structural framework of the PPP contract. The second one is the ex post aspect of alignment which involves alignment of the contract to the contextual changes in the contract environment during the contract period. In this regard, the key principles are the principles of solidarity and cooperation.