Public agencies in the United States have long contracted with private firms for a wide range of public goods and services. Together, public procurement contracts account for more than ten percent of the entire U.S. economy. Yet examples of breathtaking cost overruns, delays, and substandard contractor performance are ubiquitous, particularly in the high-stakes realm of large-scale public projects. Despite the magnitude of this contractor-performance problem, it remains largely unexplored by legal scholars. This Article argues that the contractor-performance problem is at its core a contract-remedies problem: Governments lack an effective, credible remedy for poor contractor performance. Although a number of scholars have assumed that the remedies used by private buyers can be similarly utilized by government buyers, that is not the case. Because of the unique political and institutional context in which the government operates, neither traditional contract damages nor the alternative, reputation-based remedies often utilized by private firms translate to government contracts. This Article proposes an alternative remedial approach that can be utilized effectively by government buyers. By horizontally dividing contracts between multiple, competing firms, a government can foster ongoing competition to incentivize peak performance and, when necessary, obtain cost-effective substitute performance by terminating one contract and exercising a call option for the same scope of work in a second contract. Through thoughtful design, accounting for public and private incentives and the nature of the good or service being procured, nearly any public procurement contract can be divided—and remedied—in this manner.
Click on a link below to access the full text of this article. These are third-party content providers and may require a separate subscription for access.