Yale Law & Policy Review
Privatization has become a permanent and increasingly significant fixture on the landscape of contemporary public policy. Federal, state, and local governments now turn to the private sector for everything from collecting neighborhood garbage to assisting in the occupation of Iraq. As Martha Minow recently noted, "a sea change is at work," with "[p]rivate and market-style mechanisms.., increasingly employed to provide what government had taken as duties." Nowhere is this trend more pronounced, and contested, than in the privatization of social welfare. In that arena, privatization's potential to harness the experience, efficiency, and diversity of the private sector sharply clashes with the risk to accountability raised by private-sector provision of public services. Commentators concerned with capturing privatization's benefits and muting its potential harms often call for additional government control of private providers through their contractual agreements, specifying in evermore- careful terms the scope of the engagement and monitoring providers with ever-greater oversight. In this view, privatization is best approached through contracts that are "clear, thorough, accurate, and unambiguous." These prescriptions reflect an adversarial model of privatization analogous to classical discrete contracting in private law. The model presumes that the parties to the agreement are one-time players, bargaining outside the larger legal and social context in which their interaction occurs, and capable of capturing the key variables of their engagement in relatively complete terms. Conceptualizing privatization through this discrete-contracting lens, however, understates the fundamentally relational nature of many of the agreements that define public-private partnerships. In many forms of privatization, the long-term and repeat nature of the interactions between the parties shape their agreements, reflecting the inherent uncertainties that accompany a complex and intertwined relationship that can last for decades. Recognizing privatization as a relational phenomenon shifts the locus of efficiency and accountability efforts from contractual specificity and enforcement to encouraging flexibility and fostering mutual responsibility for program goals. To explore this relational phenomenon and its implications, this Article examines the contracts and other modes of control that shape the relationship between the government and private providers in a collection of important affordable rental housing programs. Subsidized housing provides a fertile field of examination because policymakers, program managers, and private providers have been tinkering with the structures of privatization in that context for decades, yielding a number of insights into how structures of interaction have emerged. A close study of those programs reveals a core of relational contracting features that discredit models of privatization predicated on conceptions of discrete contracting. The agreements recognize in myriad ways the long-term and inherently uncertain nature of the public-private interaction, and they accordingly often frame critical provisions in flexible terms with mechanisms for the parties to adjust to changing conditions on an ongoing basis. These agreements, however, often take a limited approach to relational norms, in that they respond to uncertainty not by sharing risk and providing for the mutual adjustment of terms over time, but rather by reserving discretion to the government. Recognizing the relational, yet at times imbalanced, nature of these agreements yields prescriptions that seek to foster reciprocity and solidarity on the part of private providers. Tempering some measure of governmental discretion, or creating mechanisms to balance the parties' adjustments over time, may enhance the benefits of engaging the private sector in service provision, and may also provide alternative means to address threats to accountability. By rewarding fidelity on the part of private actors to the public values involved in services traditionally provided by the government, a relational approach can harness private incentives in the long run in a way that reinforces, rather than undermines, important public law norms. In various contexts other than privatization, relational contracts scholars have recognized the value that strategies of mutual commitment can bring to the long-term governance of contractual relations. These insights have direct relevance to the theory and practice of privatization.
Nestor M. Davidson,
Relational Contracts in the Privatization of Social Welfare: The Case of Housing , 24 Yale L. & Pol'y Rev. 263
Available at: http://ir.lawnet.fordham.edu/faculty_scholarship/153