Dynamic interplay between contractual and relational governance: An empirical study in Australian healthcare outsourcing

The introduction of New Public Management (NPM)-inspired reforms in the public sector in the 1990s saw a big leap in public–private outsourcing partnerships in public service delivery; however, many of these have failed, resulting in backsourcing. Although effective governance of the ongoing relationship between outsourcing partners is arguably key to a successful partnership, the findings as to the optimal type of relationship between two main governance mechanisms – contractual and relational – remain inconclusive. Adopting Huber et al.’s dynamic perspective of governance mechanism interplay as a research framework, this paper empirically investigates the interplay in two problematic outsourcing public–private partnerships, that is the delivery of services has been backsourced or considered to be backsourced. Our data confirm the existence of a dynamic interplay between contractual and relational governance. The findings, however, do not represent a perfect fit with Huber et al.’s conceptualizations, signalling the significance of our research as to a more diverse and complicated group of interactions. Our analysis also reveals the potential interference of additional contextual factors in the interplay. Further research that explores and tests these contextual factors is warranted.