The Effects of Contractual and Relational Governance on Public-Private Partnership Sustainability

Original study by J. Li, B. Liu, D.Wang, and C.B. Casady

This Chinese-based paper makes an important contribution to the PPP literature.  It is one of the few published papers that examines PPP performance in terms of sustainability metrics.  It also provides a novel in-depth analysis of the relationship between different approaches to contractual governance and the sustainability performance of transport PPPs in China.

The paper is premised on the recognition that PPPs do not always achieve desired results as public and private partners have different objectives.  The purpose of a partnership is to achieve something that partners cannot achieve alone.  Effective governance of contractual relationships is necessary to achieve the objectives of partnerships.  Specifically, effective governance achieves collaboration and controls opportunistic behavior whereby either partner may take advantage of the other.  Opportunism can increase transaction costs and increase the probability of costly contract negotiations or even contract failures – “outcomes that are particularly prominent in China’s PPPs”.

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