To trust or not to trust? Formal contracts and the building of long‐term relationships

Abstract

Purpose

The purpose of this paper is to explore how contracts are used to build and develop long‐term relationships in contexts where trust cannot be expected in advance – i.e. there is a lack of initial trust.

Design/methodology/approach

This paper is based on a qualitative approach, while the present study used a documentary study focusing on 21 formal contractual dyads between contractors and fulfillers within the public transport sector.

Findings

The analysis of contracts in the public sector reveals the importance of formal contracts in relationship building, as a result of a number of factors that characterize this setting, including: the highly detailed specification of terms, legislation having an effect on the design of the contract, the bidding process, in situations where there is no negotiation process, no scope for further discussion after signing contracts, no learning processes, and contracts being used to conduct day‐to‐day business.

Originality/value

This research acknowledges the fact that there is a lack of empirical investigation into the nature and form of contractual arrangements, while the study contributes to this area by using formal contracts in a public context.

Citation

Camén, C., Gottfridsson, P. and Rundh, B. (2011), "To trust or not to trust? Formal contracts and the building of long‐term relationships", Management Decision, Vol. 49 No. 3, pp. 365-383. https://doi.org/10.1108/00251741111120752