The Influence of Relational Contracting on Satisfaction with Contract Management

Background & Purpose: Managing service contracts can be challenging for private human service organizations (HSOs), who may struggle to adapt to the complexity of program performance monitoring and funders’ service delivery requirements (Hasenfeld, 2015; Smith, 2015). Research has emphasized the importance of formal rules and governance systems and informal norms of trust for effective contract management (Amirkhanyan 2011; Van Slyke, 2007). However, there has been less attention to how private and public managers interact to manage contract challenges collaboratively. And quantitative research has not examined how relational contracting efforts, in which public and private managers collaborate in order to develop cross-sector managerial partnerships, inform contract management outcomes among private HSOs. The current study examines the extent to which private HSO managerial engagement in relational contracting is associated with managerial satisfaction with contract management.  

Methods: An online survey of managers and executives in 186 private HSOs that had contracts with five Bay Area (CA) counties was conducted in July-November 2015. Of the private agencies, 89% were nonprofit; all agencies had at least one contract with one or more of these counties; and respondents were chosen based on their knowledge of and involvement in agency contracting. 483 of 592 (82%) staff completed the survey. Measurement of the dependent variable involved a 3-item ordinal scale of satisfaction with contract management (sample items included “I am very satisfied with our contract relationship with the county”, “people in this contract-based relationship communicate openly with one another”; alpha=0.92). The key predictor hypothesized to be positively associated with this outcome was a 6-item ordinal scale of respondents’ perceptions of the quality of their relationship with their primary county counterpart (sample items included “When an error has been made, my counterpart shares responsibility rather than blaming others”, “My counterpart respects the work I do”; alpha=0.91). Multivariate ordinal logistic regressions with agency-clustered standard errors were conducted, controlling for respondents’ perceptions of contract rule flexibility, time dedicated to contract management, and managerial demographics.

Results: On average, respondents perceived their contractual relationship with the county very positively (M=3.9, SD=1.1); and registered very positive perceptions of the quality of their relationship with their county contract counterpart (M=4.4; SD=1.0). Multivariate analyses determined that, as hypothesized, relational contracting levels were positively associated with levels of satisfaction with contract management (OR=2.3, p=0.000). Perceived contract rule flexibility was also positively associated with contract satisfaction (OR=2.6, p=0.000). No other factors were significantly associated with the outcome.

Conclusion: This study provides the first estimates of the influence of relational contracting on contract satisfaction among private HSOs. The strength and quality of private managers’ relationship with their public manager counterpart emerges as an important predictor, highlighting the need for research unpacking the specific aspects of the public-private managerial relationship that contribute to perceived contract outcomes. An additional finding is the value of contract flexibility, which in combination with the preceding result suggests that private HSO managers may benefit from the development of contract management approaches that emphasize public-private communication and problem-solving, and flexible implementation of contract requirements.