From long-term to short-term contracting

One can look at the arrival of New Public Management and the extensive public sector reforms inspired by this theory from many angles. Here we examine the shift from long-term contracting, typical of bureaucracy and traditional enterprises, to short-term contracting, borrowed from private sector governance methods. Shortterm contracting has three principal uses in the governance of the public sector: (a) contracting with service providers after a tendering/bidding process; (b) contracting with the CEOs of the incorporated public enterprises; and (c) contracting with executive agencies about what they should deliver. Theoretical analysis, supported by substantial empirical evidence, suggests that short-term contracting eliminates the extensive post-contractual opportunism connected with long-term contracting, but is vulnerable to pre-contractual opportunism. Short-term contracting is not just another public sector reform fad, but constitutes a new tool for government which increases efficiency when handled with prudence.