Pre-contractual relational governance for public–private partnerships: how can ex-ante relational governance help formal contracting in smart city outsourcing projects?
| Author | Rui Mu,Peiyi Wu,Maidina Haershan |
| DOI | http://doi.org/10.1177/00208523211059643 |
| Published date | 01 March 2023 |
| Date | 01 March 2023 |
| Subject Matter | Articles |
Pre-contractual relational
governance for public–
private partnerships: how
can ex-ante relational
governance help formal
contracting in smart city
outsourcing projects?
Rui Mu
Dalian University of Technology, China
Peiyi Wu
Beihang University, China
Maidina Haershan
Dalian University of Technology, China
Abstract
In the literature on relational governance, it is often assumed that relational governance
emerges primarily after formal contracting and acts as a functional supplement to a for-
mal contract. In this article, we show that especially facing deep uncertainties, relational
governance can emerge before the start of formal partnerships, in the form of trust-
building, exchanging resources, and fostering flexibility. Based on a case study of a
smart city outsourcing project, this article introduces a forward-extended framework
of relational governance that captures the pre-contractual dimensions of relationship
cultivation and their role in facilitating formal contracting. The study finds that pre-con-
tractual relational governance facilitates formal contracting by reducing substantive,
evaluative, technological, and procedural uncertainties in the project and helps the part-
ners to design an elaborative contract, undergo an easy negotiation, adopt short-term
contracts, and use simple monitoring and evaluation methods. The article thus argues
Corresponding author:
Peiyi Wu, School of Public Administration, Beihang University, Beijing, China.
Email: wupeiyi14@mails.ucas.edu.cn
Article
International
Review of
Administrative
Sciences
International Review of Administrative
Sciences
2023, Vol. 89(1) 112–128
© The Author(s) 2021
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/00208523211059643
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that only understanding post-contractual relational governance is insufficient for explor-
ing the relation between formal contracting and relational governance; facing deep
uncertainties, it is necessary to understand how public and private parties develop
their pre-contractual relationship and reduce the uncertainties before a formal contract
can be signed.
Points for practitioners
Practitioners should realize that there is much room for relational governance in the pre-
contractual phase of PPP projects when the projects are rife with various uncertainties.
Public and private parties can take measures to build trust, foster flexibility, and create
interdependence before a formal contract is signed. These ex-ante relational governance
measures can facilitate formal contracting by reducing the various uncertainties, making a
formal contract designable, making negotiation smooth and easy, and reducing the need
for contract supervision.
Keywords
public–private partnership, outsourcing, relational governance, uncertainty, smart city
Introduction
In public–private partnerships (PPPs), because of information asymmetry, opportunism,
and distrust, keeping partners’long-term and high-level commitment is challenging
(Chuang et al., 2020; Mu et al., 2010). Confronting this challenge, researchers and practi-
tioners have devoted much attention to designing appropriate governance mechanisms
that can facilitate economic exchanges and avoid transaction hazards between public
and private organizations in the provision of public services or assets (Maurya and
Srivastava, 2019; Xiong et al., 2019). Currently, there are at least two governance
mechanisms in the literature, contractual governance and relational governance, with
the former using rules, performance indicators, sanctions, and risk allocation to govern
exchanges, and the latter emphasizing the role of trust, flexibility, and interdependence
in ensuring partners’commitment and performance (Benítez-Ávila et al., 2018; Poppo
and Zenger, 2002; Warsen et al., 2019).
Prior literature analyzed the functional complementarity between contractual and rela-
tional governance. For instance, Benítez-Ávila et al. (2018) find that relational govern-
ance, including elements of norm and trust, functions as a positive mediator between
contractual elements and partners’contributions to the project. Warsen et al. (2019)
suggest that successful PPPs are ascribed to a mix and match of contractual and relational
conditions; that is, formal rules and relationship management in terms of trust-building
and conflict resolution jointly shape the performance of PPPs. Young et al. (2021) inves-
tigate the dynamic interplay between contractual and relational governance along the
whole project lifecycle and identify the interactions between contractual and relational
elements over time. These studies typically assume that relational governance comes
about after contracts are made and that relational governance plays as a post-contractual
Mu et al. 113
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