Contract Type and the Cost of Provision: Evidence from Maintenance Service Contracts* |
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Authors: | Paul H Jensen Robin E Stonecash |
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Institution: | 1. Melbourne Institute of Applied Economic and Social Research, University of Melbourne (pjensen@unimelb.edu.au);2. Graduate School of Management, Macquarie University (Robin.Stonecash@gsm.mq.edu.au) |
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Abstract: | More than half a billion dollars are spent each year on the maintenance of Australia's urban water and sewerage networks. Expenditure is governed through a mix of in‐house and outsourced maintenance service contracts. We re‐examine issues relating to the relationship between the cost of maintenance service provision and the type of contract used. We take advantage of the fact that water retailers in Melbourne use a mix of contract types – including fixed‐price (FP) and cost‐plus (C+) contracts – for the provision of water and sewerage network maintenance services. Our results suggest that the C+ contract results in substantial savings. |
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Keywords: | contract efficiency incentives moral hazard procurement contracting out D82 H11 L33 |
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