Down the drain: The dynamic interplay of governance adjustments addressing setbacks in large public-private projects

Large government projects involving public-private collaborations inherently suffer from setbacks such as delays, cost overruns, or failure to meet contracted performance. Such setbacks may effectively be addressed through adjustments to contractual and relational governance; yet to date, the dynamics of governance adjustments and their interplay in addressing setbacks is not well understood. This research presents a dynamic theory of how parties can effectively address project setbacks through adjustments to contractual and relational governance. The dynamic theory was generated using longitudinal case data from two large public-private projects in the Netherlands that faced comparable project setbacks but deployed opposing governance adjustments, leading to drastically different project outcomes (i.e., collapse vs. recovery). This theory was then elaborated through two more cases and evidence from the literature. A system dynamics simulation model was then built that reproduces the different governance adjustments and outcomes observed in the four projects and serves to extend theory building. The refined theory not only shows under what conditions adjustments to contractual or relational governance are most effective, but also that governance adjustment interplay may trigger unintended side effects. As such, the theory explains why the careful balancing of governance adjustments is critical to project outcomes. Setbacks in public-private projects can effectively be addressed through adjustments to contractual governance (e.g., more flexible vs. more strict contract application) and relational governance (e.g., trusting more or less).Project setbacks can effectively be addressed through adjustments to relational governance, which subsequently allow adjustments to contractual governance, while adjustments to contractual governance preclude adjustments to relational governance and may lead projects to recover slowly or not at all.Contractual and relational governance adjustments warrant careful balancing, as their interplay may lead well-intentioned governance adjustments to have unintended side effects (e.g., adjustments to contractual governance triggering resource investment but also smothering communication).