Navigating contract renegotiations with sustainability at the helm: Societal benefits and transaction costs

Author:

Domingos Fernando Deodato1ORCID,J Heinrich Carolyn2,Saussier Stéphane3,Shiva Mehdi4

Affiliation:

1. Sao Paulo School of Business Administration, FGV-EAESP, Brazil; Blavatnik School of Government, University of Oxford, UK

2. Vanderbilt University, USA

3. Sorbonne Business School, University Paris I Panthéon-Sorbonne, France

4. Blavatnik School of Government, University of Oxford, UK; RAND Europe, UK

Abstract

Public procurement and cross-sector collaborations in national economies offer the opportunity for advances in sustainability practices, including through sustainability-related renegotiations during the execution of public contracts. Using rich, granular data from contract modification notices made publicly available by the European Union (EU) tenders electronic daily (TED), we investigate whether sustainability-related renegotiations, apart from generating positive environmental externalities, also limit ex-post transaction costs associated with contract renegotiations. Transaction costs are assessed in our study by the sentiment of renegotiations (negative or conflictual) and potential red flags associated with overly costly adjustments. Our findings suggest that regardless of whether contracts were initially focused on sustainable issues or not, sustainability-related renegotiations could have the dual benefit of a priori reducing environmental externalities while further limiting ex-post transaction costs associated with contract execution. More generally, contract modifications (renegotiations) may be under-utilised in public procurement contracts given their possible ‘double dividends’.

Publisher

SAGE Publications

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