Perceptions of success in performance-based procurement

Abstract

Purpose – The purpose of this study is to analyse, from the perspective of agency theory, differences between client and contractor in their perceptions of changes in uncertainty and in inclination to opportunistic behaviour while using a performance-based procurement procedure. In agency theory, dealing appropriately with the uncertainty and opportunism that results from information asymmetry is an essential precondition for successful procurement. Design/methodology/approach – The procurement procedure analysed is the Performance Information Procurement System (PiPS). PiPS is a performance-based procurement method that uses historic performance information to select the expected best performing contractor. In a theoretical model, a PiPS is interpreted as a set of contractual and organisational safeguards. Through a survey, based on this model, the perceived effects of the PiPS safeguards for both clients and contractors are investigated. Findings – Both clients and contractors believe that applying PiPS introduces safeguards that reduce transaction uncertainty. The perceived changes in the discouragement to use opportunistic behaviour when using PiPS differ between client and contractor. Clients do not know and contractors are sceptical as to whether applying PiPS discourages opportunistic behaviour. This difference in perceptions can be explained by the often-traditional background of the two parties’ project teams and the existence of information asymmetry. Originality/value – This is one of the first studies to show that changes in the transaction environment in a performance-based procurement process are perceived differently by the client and the contractor. It is necessary to align the roles of both parties to avoid problems related to opportunistic behaviour.