Renegotiations of public contracts: A blessing in disguise?

Procurement in Focus: Rules, Discretion, and Emergencies, CEPR book, Oriana Bandiera, Erica Bosio, Giancarlo Spagnolo (Eds). 2021, Nov — Jean Beuve et Stéphane Saussier


Because they address services of general interest and they involve vast amounts of public
money (on average 12% of global GDP; see Bosio et al. 2021), renegotiations of public
contracts are a very important topic for researchers and practitioners. The new European
Directives on public procurement and concession contracts (Directives 2014/24/UE
and 2014/23/UE) regulate, for the first time, contract changes in the face of unforeseen
contingencies during contract execution.
The Covid-19 crisis was clearly unanticipated and a disturbing factor in many public
contracts. One of its consequences is an increase in contract renegotiations. Indeed, the
number of registered renegotiations increased by more than 70% in 2020 compared to
2019. During the first five months of 2021, the frequency of renegotiations again increased,
by more than 10% compared to the same period in 2020.
Should we be concerned about this development? Does it reflect good cooperation
between contracting parties? Alternatively, do renegotiations destroy incentives and
reflect opportunistic behaviours? Whether contract renegotiation represents a mutually
beneficial move towards greater efficiency or the demonstration of opportunistic behaviour
is an important research issue. On the one hand, renegotiation might be used by one of
the contracting partners to opportunistically renege on his or her initial commitments
(Williamson 1985), reducing incentives (Guasch et al. 2008) and destroying trust between
parties (Fehr et al. 2011, Frydlinger et al. 2019). On the other hand, renegotiation is a
way to adapt to unforeseen events (Williamson 1985, Grossman and Hart 1986) and keep
the contractual agreement efficient. Ultimately, public contract renegotiations should
therefore not be criticised in a systematic way, but the phenomenon should rather be
considered complex and deserves to be studied carefully.

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