Can contracts facilitate trust?

There is an uneasy tension between trust and contracts. Reflections on this tension have featured prominently at previous editions of the Social Outcomes Conference: from David Van Slyke’s keynote address at SOC20 on “rethinking the governance of innovation” to last year’s deep dive session exploring whether it’s time to be more “friendly” in outcomes contracting and relational contracting more broadly.

In many ways, the formal contracts and a legal framework to support and enforce them have arisen because we can’t know (and therefore trust) everyone we want to work with. As a result, we build formal mechanisms to incentivise good behaviour and punish defection in order to facilitate cooperative behaviour. However, if poorly designed, these formal mechanisms risk actively sowing distrust and damaging the partnership.

Fortunately, recent developments in formal relational contracting have sought to address this, by designing contractual relationships that foster rather than damage trust. At last year’s conference, GO Lab Executive Director Nigel Ball and I presented our practitioner guide on how the principles of relational contracting might help to support more effective public-private partnerships. In the guide, we focused on how adopting greater relational intent might help to facilitate greater resilience and collaboration. However, as we explore formal relational public contracting in greater depth, we are increasingly interested in how more formal elements may support this approach, while also preventing greater relationalism sliding towards corruption.

The formal contract

One feature that might foster trust between parties is the contract itself. As David Frydlinger, Oliver Hart and Kate Vitasek have argued, a range of features including shared principles and decision-making forums may be included within the formal contract. They suggest these features will encourage parties to behave in a more relational way with one another. By including these elements, the contract sets the tone for the wider partnership.

While Frydlinger, Hart, Vitasek and colleagues have established these principles in theory, and begun to explore them in practice within private contracting, there has been limited empirical exploration within public-private partnerships. Here, formal relational contracting comes into contact (and potentially, tension) with public law, public regulations, and public accountability. In order to explore how formal relational features might be incorporated into formal contracts in this context, my colleague Felix (Postdoctoral Research and Policy Associate) is leading detailed analysis of the contracts underpinning a complex social service partnership being delivered under a social impact bond in the north of England.

The contractual form

However, perhaps it is not just what is in the contract that facilitates or inhibits more relational behaviour; it may also be influenced by the structure of the contractual partnership. In recent decades, a number of innovative public-private partnership forms have emerged in response to an increasingly complex and fragmented service delivery landscape. A variety of contracting models including prime providers, outcomes-based contracting (and its variants, like social impact bonds) and alliance contracts have all been pursued. But there is little clarity around the variation across these, or where one approach might be preferable over another.

We are interested to explore how these varied models might help or hinder more relational working. For example, while outcomes-based contracting has often been viewed as excessively target-driven, we have observed signals of relational practice within some of these contracts. This suggests the model itself is not entirely destructive of trust, and indeed may enhance it in some cases. However, it will be important to unpack which features may be particularly relevant. This may enable those pursuing a more relational approach to better consider the suite of contracting models available to them, and identify the most appropriate one for their needs. Along with my colleagues Eleanor (Research Director) and Felix, I am exploring how different contracting models might relate to the features of relational contracting.

Beyond the contract

Clearly, a number of features of the contract – from the type of contractual partnership, to what is included in the formal terms – can influence the resulting relationship between parties. However, these features alone will not ensure a more relational way of working. The contract provides a scaffold for the relationship, but its quality will depend on what the parties choose to build within that framework. We are therefore also keen to explore in parallel the more informal, human factors which influence greater trust in contractual relationships.

Trust and relationships at SOC23

We’re really excited to get into both the formal and informal elements that might drive a more relational approach to public service delivery, and hope that discussions can build on the strong foundation set at last year’s conference. We have some ideas, but we’d also love to hear from you! There’s still a few weeks left to submit a proposal for a contribution, whether that’s an academic paper or practice presentation, to the Social Outcomes Conference 2023.

If you have an insight that might be relevant to our understanding of how trust and relationships can be built in support of better public service partnerships, then I’d encourage you to make a submission – we’d love to hear from you. Or if you don’t have anything to contribute (yet), make sure to register to join us in Oxford or online in September and get involved in the debate!