Flexible Contracts Research Articles

Uniting in the letter but breaching in the spirit: Contract flexibility and interfirm collaboration based on the Contracts as Reference Points Theory

Contracts are generally assumed to be farsighted and effective in governing ex post trading behaviors. However, we know little about why not all the ex post trading behaviors can be contractible under conditions of contract flexibility. Drawing on Contracts as Reference Points Theory, this study focuses on contract flexibility which is viewed as an essential ingredient for success in long-term oriented Eastern cultures. We examine the trade-off between uncertainty coping and opportunism induced by contract flexibility, which is conceptualized as a reference-dependence decision problem. Using the dyadic survey data of supplier and buyer relationships, we find that contract flexibility facilitates uncertainty coping. The positive effect of contract flexibility on uncertainty coping is enhanced by buyer political ties and supplier power. The effect of contract flexibility on opportunism is mitigated by supplier power. Moreover, uncertainty coping increases relationship performance, whereas opportunism inhibits relationship performance.

Managing Professional Promotion Mechanism for Rural Teachers at the Pre-service Stage

Rural teachers' pre-service stage professional promotion mechanism refers to a series of rule-based systems of incentives, constraints and guarantees implemented to promote rural teachers' professional growth before they enter into the profession. At present, although the pre-service stage professional promotion mechanism of rural teachers in China has various forms and fruitful contents, the effectiveness of its implementation is very limited. This paper argues that the enrolment mechanism of orientation and priority for rural children, the training mechanism of public funding and contract flexibility, and competition for entry into the countryside, with the compilation of the post, are the current effective mechanisms to promote the professional growth of rural teachers at the pre-service stage.

Assessing landowners’ preferences to inform voluntary private land conservation: The role of non-monetary incentives

Private land conservation (PLC) is an increasingly recognized strategy to help address the global biodiversity crisis. Understanding landowners’ context-dependent preferences for different PLC policies is key to designing and implementing successful voluntary strategies aiming to foster participation and long-term engagement. However, funding shortfalls and diverse cultural values mean that traditional approaches such as land acquisition or payment for ecosystem services policies may not be the best approaches to increase landowners’ participation in PLC. In this study, we examine landowners’ preferences for monetary and non-monetary incentives and how these might increase participation in PLC. We also address a geographical gap in PLC literature by assessing landowners’ preferences for voluntary PLC policies in Uruguay, a country located in the Río de la Plata Grasslands ecoregion (South America), one of the most endangered and least protected biomes worldwide. This case study provides a useful test-bed of non-monetary incentives, since 96% of the land is privately owned and no voluntary PLC strategies are in place yet. Using a choice experiment, we found that landowners were more willing to engage in voluntary PLC if policies align with their values and needs. Non-monetary incentives, such as access to training and technical support, were preferred over monetary payments, highlighting opportunities to develop context-specific policies that would foster environmental stewardship and long-term engagement. Designing policies by including a diverse set of instruments, flexible contract lengths, and integrating the context-specific social and cultural characteristics underlying landowners’ identities and values, are crucial aspects for increasing participation.

Relationship Embeddedness in Construction Project Teams: The Effect of Social Behaviors on Relational Behaviors

Relational and social behaviors of construction project team members explain relationship embeddedness. The literature review revealed three social behaviors (i.e., past experience, benevolence, and integrity) and seven relational behaviors (i.e., harmonization of conflict, propriety of means, restraint of power, reliance and expectation, contractual solidarity, flexibility, and reciprocity) commonly exhibited by construction project team members. Through a binomial logistic regression, research findings revealed that past experience was a significant (p < 0.01) predictor for five of the seven relational behaviors while benevolence and integrity were each significant (p < 0.01) predictors for three of the seven relational behaviors. Overall, out of the seven relational behaviors, only propriety of means is predicted by all the three social behaviors. Through internal validation, the prediction models performed well based on both positive predictive values and negative predictive values. From a relationship management standpoint, this research introduces relational and social behaviors of team members as triggers of relationship embeddedness. The results contribute to understanding the effect of social behaviors on the relational behaviors found in construction project teams where eleven statistically significant models that predict relational behaviors using the social behaviors were validated. The implication of this is that construction industry practitioners can use these prediction models to predict relationship interdependencies of team members.

Sustainability on the Service Capacity in Elderly Healthcare Service Supply Chains: An Application of Flexible Contracts

This article concerns the channel coordination of a two-echelon elderly healthcare service supply chain consisting of an elderly service integrator and a service provider to satisfy uncertain demand. Such channel coordination is achieved using a loss-sharing contract embedded with options, and the optimal service capacity and service sales effort are derived under a game-theoretic model. Results show that the loss-sharing contract, if used alone, cannot coordinate the supply chain effectively, and it needs to be combined with some options to achieve desired channel coordination. For the case of put option contract, the elderly service integrator will order the maximized service capacity initially. This is however, in contrast with the case of the bidirectional option contract where the integrator will order the minimized service capacity at the highest option price. Several managerial implications of the results are discussed, and some suggestions for implementation of the flexible coordination mechanisms for the government are provided.

Learning Large Electrical Loads via Flexible Contracts With Commitment

Large electricity customers (e.g., large data centers) can exhibit huge and variable electricity demands, which poses significant challenges for the electricity suppliers to plan for sufficient capacity. Thus, it is desirable to design incentive and coordination mechanisms between the customers and the supplier to lower the capacity cost. This paper proposes a novel scheme based on flexible contracts. Unlike existing demand-side management schemes in the literature, a flexible contract leads to information revelation. That is, a customer committing to a flexible contract reveals valuable information about its future demand to the supplier. Such information revelation allows the customers and the supplier to share the risk of future demand uncertainty. On the other hand, the customer will still retain its autonomy in operation. We address two key challenges for the design of optimal flexible contracts: i) the contract design is a non-convex optimization problem and is intractable for a large number of customer types, and ii) the design should be robust to unexpected or adverse responses of the customers, i.e., a customer facing more than one contract yielding the same benefit may choose the contract less favorable to the supplier. We address these challenges by proposing sub-optimal contracts of low computational complexity that can achieve a provable fraction of the performance gain under the global optimum.

The relevance of investor rights in crowdinvesting

A common assumption is that entrepreneurs retain more control of their venture when opting for crowdinvesting rather than venture capital. In this article, we investigate the relevance of cash-flow, control, and exit rights awarded to crowd investors in Germany, where more flexible contracts are offered than in many other jurisdictions. In Germany, many of the rights used in venture capital investment contracts are also prevalent in crowdinvesting contracts. We find that crowd investors are asked to pay higher prices if they receive more cash-flow and exit rights, consistent with the view that these rights are valuable to the crowd. However, we find no evidence that these rights affect campaign outcome, the likelihood of securing follow-on funding, or the insolvency likelihood of the venture. We interpret this as evidence that the redemption rights stipulated in the contract make other types of control rights less relevant or investors' actions are ineffective. Furthermore, crowd investors neither trigger insolvency proceedings nor mention the enforcement of their contractual rights in investor communication blogs or popular media.

Unilateral Modification of Long Term Contracts: American Change of Terms Clauses and Italian Ius Variandi from a ‘Relational’ Point of View

Abstract This article analyses the compromise required between certainty and flexibility in long-term contracts, which would appear to be intrinsically linked to the adoption of adjustment tools. The allocation of rights and risks at the beginning of a contract may include the enforceability of clauses which empowers one party to unilaterally amend the original terms of the contract. On the one hand, a right granted by a change of terms clause, if properly exercised, may allow both parties to obtain the most from a long-term contract. On the other, it is essential to provide limitations so as to avoid the result that this contractual dexterity gives an unfair advantage to one party to the detriment of the weaker party.

EVALUASI JUMLAH TENAGA KERJA DALAM KONSTRUKSI MENGHADAPI ERA NEW NORMAL

<p>The impact of Covid-19 on the implementation of construction services includes budget cuts, delays in project completion, increased implementation costs, potential for construction disputes. In the era of "New Normal”, it is done with the condition that Covid-19 transmission has been controlled by Public Health and the capacity of the health system is able to identify, isolate, test, track contracts and quarantine. In the era of "New Normal" reduce the risk of outbreaks by strict regulation of places that have high vulnerability, prevention at work is implemented, the risk of the spread of imported cased can be controlled, and people take part and be involved in the transition. The design of "New Normal" in terms of Construction can be said as "Construction Adaptation" in which the implementation of construction services that is safe, effective, and efficient to accelerate development while still implementing health protocols. The protocols that should be implemented include: procurement protocols based on online and minimizing face-to-face, work implementation protocols using masks and physical distancing and contract adjustment protocols with contract flexibility to accommodate field conditions. Construction survival strategies in the "New Normal" era, namely: digitizing by optimizing the use of Building Information Modeling (BIM), specialization with a focus on specific expertise, industrialization with modular and precast buildings increasing work productivity, building supply chains with vendor management system, adaptation by absorbing concepts new design and new innovation, trust communication.</p>

How does the strength of ties influence relationship quality in Chinese megaprojects? The mediating role of contractual flexibility

PurposeThis study aims to explore the influence of the strength of ties (strong ties and weak ties) on contractual flexibility (term flexibility and process flexibility) and relationship quality among stakeholders in a megaproject network.Design/methodology/approachThis study, via a questionnaire survey, collected 380 valid responses from megaproject professionals (including project managers, department managers and project engineers). The data were analyzed using least squares structural equation modeling.FindingsThe results show that both strong ties and weak ties have positive effects on relationship quality. The introduction of contractual flexibility can help improve relationship quality by combining the positive effects of the strength of ties. Interestingly, the indirect influence of strong ties on relationship quality is mainly due to term flexibility. However, the influence of process flexibility is not significant, while weak ties have an indirect influence through term flexibility and process flexibility.Research limitations/implicationsThis study, while helpful to megaproject management both in theory and practice, is nevertheless subject to several limitations. First, this study only considers the impact of the strength of ties on contractual flexibility and relationship quality; other factors, such as environmental uncertainty, are not explored. Second, the sample data are limited to just a few regions of China. Future research should cover other influencing factors, in order to make the model more substantial; data should also be collected from different cultural and industrial sources, thereby extending and further verifying the results.Originality/valueThis study makes three contributions to extant megaproject literature. First, this study provides a deep and nuanced understanding of the strength of ties. With the distinction between strong ties and weak ties clearly explained, this research furnishes a subtler understanding of relationship governance than has previously been achieved. Second, by precisely identifying the mechanism of how contract flexibility improves contract control and coordination functions, this research offers a complementary view of how contractual flexibility positively contributes to cooperation and relationship quality. Third, this study identifies which dimension of the strength of ties is more influential. This brings a new explanation for the previous controversy and offers some insight into the determinants of how to improve relationship quality in Chinese megaprojects.

Evaluation of sourcing contracts in wood supply procurement using simulation

AbstractProcurement operations in forest companies are exposed to various risks, which may increase procurement costs. Examples of risks are the contract's unreliability and contract breach. Deterministic planning models cannot perfectly reflect the complexities of real‐world applications in the presence of sourcing risks when the future is uncertain. In practice, forest industries use contracts to guarantee the wood supply. Monthly forecasts are prepared for the delivery volume and are primarily based on the experience of procurement staff and the total volume of contracts. Missed deliveries in the contracts lead to a mismatch between the supply and demand for wood fiber and increase the costs of procurement as a result of high inventory costs or expensive purchases from the open market. Previous studies on simulating the impact of sourcing risks on procurement operations have been conducted; however, none have addressed the selection of procurement contracts in the presence of sourcing risks. In forest industry, numerous suppliers are available with sourcing contracts. Each contract possesses its own characteristics such as flexibility, volume, schedule, and price of delivery. A Monte Carlo simulation approach is implemented to analyze the behavior of a deterministic planning approach. Random events are generated by formulating different types of sourcing risks, having either short‐ or long‐term impact. The simulation is embedded with a deterministic planning model in each period. Results showed that management of sourcing risks is easier with flexible contracts than with fixed contracts, despite their higher purchasing cost.

Specific capacity investment in supply chains

In a supply chain composed of a supplier and a buyer, the supplier must make two decisions, buyer-specific capacity and cost-reduction investment for each unit of the installed specialized capacity, before demand uncertainties have been resolved. However, because capacity is not verifiable, the firms cannot commit to firm contract terms. Bearing the upfront investment cost, the supplier under-builds specific capacity and under-invests in the cost-reduction innovation, thereby lowering supply chain efficiency. A common arrangement is that the parties agree to some initial contract terms ex ante, and may renegotiate ex post. This paper investigates whether several common types of contract can induce the supplier to build specialized capacity and invest in cos-reduction innovation at the first-best levels, and how ex post renegotiation affects the results. Under quantity-only contracts, the supplier will over-invest in cost-reduction innovation but under-build specific capacity either with or without ex post renegotiation. Under price-only contracts, the supplier will under-invest in cost-reduction innovation but over-build specific capacity. Ex post renegotiation improves the channel profit and brings the supplier’s decisions closer to the firstbest, but its decisions remain suboptimal. However, there exist one quantity-plus-price initial agreement and a schedule of option contracts that yield the first-best decisions. The price/quantities do not change whether ex post renegotiation is permissible. However, channel efficiency and the firms’ profits improve when ex post renegotiation is permissible. Because of the flexibility of option contracts, the firms renegotiate only if the buyer exercises up options and wants to buy more ex post, while they renegotiate with certainty under the optimal quantity-plus-price initial contract.

New Retailing Problem for an Integrated Food Supply Chain in the Baking Industry

As coronavirus disease 2019 (COVID-19) continues to spread, online consumption habits in China have changed significantly. Thus, the booming online-to-offline (O2O) food ordering and delivery industry via the online bakery have been changing customers’ food shopping behavior. This article proposes a comparison relying on advanced O2O strategy for a single-vendor-single-retailer integrated system. Three coordination mechanisms consist of revenue-sharing, buy-back, and quantity flexibility contracts have been employed for optimizing the order quantity. Replenishment strategies and temperature for the supply chain members are considered based on the new retailing framework. Herein, the authors suggest an algorithm for the computation of the optimal solution. Lastly, numerical examples and sensitivity analysis are also conducted to clarify the usefulness of the proposed model in the food supply chain. Sensitivity analysis revealed a number of managerial insights. For example, the results obtained under O2O operations can be compared with those obtained under online/offline operations (under various parameters settings) to determine an opportune moment for three coordination mechanisms.

Impact of flexible work contracts and multi-skilled agents on a multi-objective workforce planning problem

This article studies the impact of flexible work contracts and multi-skilled agents on a multi-objective workforce planning problem. Each agent has a work contract with a weekly and daily work capacity. The company has to create a planning for its agents to fulfil the customers’ demands. When assigning agents to specific demands, three different objectives have to be attained, including minimising the travel costs between agents’ home and their workplace, and maximising agents’ satisfaction related to the workload balance between them, and to their preferences for certain working periods. In the context of the evolution of the demands over time, the company has to introduce different levers to increase the level of workforce flexibility. Flexible work contracts and multiple skills are the two levers that are focused on here. The mixed integer linear programming method is used to model and solve the problem. Numerical experiments with real data provided by a Brazilian company show the positive impact of these two levers on the feasibility of problem solving and on the quality of the solutions obtained. Different managerial recommendations based on these results are proposed to companies to help improve their strategy for workforce development.

Possíveis cedências do controle da administração no pós-pandemia

Em 2020, com a pandemia da Covid-19, países como o Brasil adotaram um regime jurídico próprio para o enfrentamento da crise sanitária, com a flexibilização de contratações públicas e divisão dialogada de competências entre os entes federados. Preocupa, no entanto, os parâmetros de controle para os atos administrativos, atos da administração e as decisões públicas no cenário posterior à crise de saúde. O presente artigo estuda possíveis cedências do controle da administração pública no cenário pós-pandemia (Covid-19). Para isso, realizou-se um estudo eminentemente bibliográfico, abrangendo a análise de livros e artigos científicos sobre o tema, bem como uma investigação dos textos jurídicos-normativos de regência no período e decisões judiciais pertinentes ao objeto pesquisado. Ao final, chegou-se à conclusão de que o controlador deve realizar um exercício de empatia com o gestor público da época, não significando um abandono da legalidade, que no cenário abrange a necessidade de que as decisões administrativas tenham sido efetuadas com base em evidências científicas.

Contractual Rigidity and Political Contestability: Revisiting Public Contract Renegotiations

We present a model of public procurement in which both contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to-private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Top three LNG buyers to search for alternative LNG pricing structure after paying a total cost premium of $56 billion for oil-indexed LNG contracts in 2019 and 2020 – how will this affect Australia as the number one supplier to this market?

Increasing spreads between spot liquefied natural gas (LNG) and oil-indexed contracts have resulted in the world’s top three LNG buyers paying a cost premium of $33 billion in 2019 and 23 billion in 2020. The top three buyers are Japan, China and South Korea, which had a combined 151Mt of long-term LNG contracts indexed to oil in 2020. This cost premium shows what top Asian buyers are currently paying for the security of LNG supply through long-term oil-indexed contracts. However, it also shows the potential reward Asian buyers have if they manage to develop a liquid LNG pricing hub in Asia to which they can index their contracts. Japanese buyers’ efforts of increasing flexibility in contracts, both through take-or-pay agreements and destination flexibility and aims of growing the spot market, will increasingly support the liquidity of the LNG market. However, there will be resistance from the other side of the table, for where someone is paying a premium, or making a loss, someone is making money. 2020 was another year of plenty for LNG producers selling oil-indexed volumes to Asian markets. Australia is the largest seller of LNG to Japan, China and South Korea with over 60Mt of long-term LNG contracts indexed to oil in 2020. Australia has benefited from having their contracts indexed to oil, but what’s next? In this paper, Rystad Energy will discuss the future market for Australian LNG exports including development in LNG demand, contract trends and price spreads.

Стабильные системы гибких договоров

The paper studies the systems of paired contracts between agents of two complementary groups (workers and firms, students and universities, depositors and banks). Multiple contracts are allowed, as well as flexible contracts when the contract is concluded with some intensity. Agent preferences are described using choice functions. It is shown that if these choice functions satisfy the condition that we call conservativeness, then there are so-called stable systems of contracts, when it is unprofitable for any pair of counterparties to change the concluded contracts. The existence of a stable system of contracts is established using the transfinite process of sequential approximation, which generalizes the classical Gale−Shapley algorithm. As a result, we relieved of the finiteness conditions of the set of contracts. Such properties of stable systems as polarization and latticeness are also studied.

Equipment as a Service: The Transition Towards Usage-Based Business Models

“Equipment as a service” is perhaps one of the most drastic examples of usage-based business model innovation (BMI) in the field today. To date, a systematic analysis of this phenomenon is lacking. This study aims to close this gap and develops a primer for usage-based BMI. Drawing on BMI theory and expert interviews, our contribution is three-fold: We clarify (1) why firms move towards usage-based business models, (2) what the main usage-based business model archetypes are, and (3) how shifting to these archetypes impacts business model components and innovates the business model. Our analysis identifies macro- and firm-level supply- and demand-side drivers and inhibitors which lead to four main usage-based business model archetypes: “Leasing Plus”, “Flexible Contracting”, “Renting/Sharing”, and “Performance Contracting”. The most radical model in terms of its supply-side risk-return profile is “Performance Contracting”. Evidence suggests that two groups of firms are particularly drawn to usage-based models: Firms in “young”, tech-enabled industries and firms in more mature or even declining industries. The former apply usage-based models as a proactive effort to push their products into the market. The latter do so as a defensive move to secure their market position and not lose customers with liquidity problems. Digitalization is likely to reinforce these developments.

Contracts as reference points: A replication

We replicate two treatments of an experimental theory test (Fehr et al., 2011) studying Hart and Moore (2008)’s idea that contracts serve as reference points in trading relationships. In contrast to rigid contracts, flexible contract terms may be perceived in a self-serving manner and, therefore, the contract parties might form subjective entitlements. This reference-dependent perception of flexible contract terms leads to a trade-off of the contractual form. While flexible contracts are, in theory, deemed preferable to rigid contracts, frustrated subjective entitlements may lead to perfunctory performance and shading behavior that is absent in rigid contracts. The results of our replication are mixed. Our findings imply further support for Hart and Moore (2008)’s contracts as reference point hypothesis. However, our replication does not provide reliable evidence for the idea that competition creates objectivity and enhances perceived fairness of the contract terms.