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Most public infrastructure is provided by traditional procurement methods generally based on quantitative selection techniques and adversarial contracting principles. International evidence suggests that this method of contracting is inefficient, is often delivered late, and is often over-budget. Further, the adversarial nature of these contracts means that disputes over variations, changes to specification or renegotiation may lead to lengthy and costly ex post negotiations or civil action. The introduction of alternative procurement methods (APM) in the early 1990s introduced a less adversarial contracting approach in which ownership (of decision-making) and responsibility for design and operation of the service-producing asset passed to the contractor with the state adopting a regulatory role. The contract is non-adversarial to the extent that the relationship between the contractor and the state is one of long-term relationship management. Evidence suggests that APM is achieving better time and cost performance than adversarial methods and contributing to improved service delivery and lower lifecycle costs.
This paper reviews the theoretical literature with a view to understanding the relationship of the parties in a non-adversarial project procurement contract. It finds that the principal and agent view of traditional procurement may not be the best way to understand collaborative contracts where the relationship can be characterised as purely transactional – the principal is a buyer of services and the contractor is the producer. The paper also reviews the empirical evidence and finds that the characteristics of non-adversarial contract models such as the output specification, qualitative selection criteria, the alignment of responsibility for service outcomes and residual control rights, incentives, life cycle costing and risk-weighted value for money measurements, are improving project delivery performance and service outcomes.
This document has been peer reviewed.