Exploring contracts as reinvented institutions in the Danish public sector

Contracts have been on the agenda in public sector reform in most OECD coun tries. In Denmark, contracts have been considered as one of the most import ant tools in reorganizing the public sector. The article examines the imple mentation of contract agencies in central government in Denmark during the 1990s. First, a review of contractual theory distinguishes between 'hard' a nd 'soft' contracting. Second, recent developments in contracting in Denmar k are examined, and three phases of contract agencies are identified. Contr acts have been supported by other tools for reporting on performance like a nnual reports. Third, it is argued that Denmark has put co-operation and ne gotiation before more strict management and control. The Danish experience can be seen as an alternative to the principal-agent model. The article fin ishes by discussing the pros and cons of the Danish approach, and suggests that although the pragmatic approach has merits, it may lead to problems in the future concerning the credibility of the whole project.