The Lectern: Cooperative vs. adversarial approaches to contracting

It has become increasingly apparent from recent media accounts that the back story to the recent high-profile problems with airline inspections and flight cancellations involves a political controversy over the Federal Aviation Administration's approach to safety regulation.

Beginning in the Clinton administration and continuing in the Bush administration, the FAA has moved toward a more cooperative approach to safety regulation, encouraging airlines to report safety problems voluntarily with the hopes that more reports of problems will be generated that then can be shared with other airlines when there are systemic issues that need to be dealt with. Behind the recent ruckuses lies a political backlash against this approach, seen as being too "soft" on the industry.

There is of course no one-to-one analogy between regulation of business and government/vendor relationships in contracting. Or at least there shouldn't be — the degree of common interest in contracting between government and industry is much greater for contracting than for regulation. (Indeed, a fundamental error of the POGOs of the world is to believe that the government/vendor relationship is just like a regulatory relationship between government and business.) Of course, even in contracting, interests are not identical, and the government has interests it must protect.

Nonetheless, this controversy has some analogies to contracting. One important reason is that when it comes to airline safety, the airlines have a strong interest in complying with regulations because of the huge damages to their reputation from crashes, particularly if they are shown to be due to poor maintenance or safety negligence. Compare that to, say, the enforcement of environmental regulations, in which many firms would just as soon not comply with regulatory mandates. So the extent of common interest between government and industry comes closer to the contracting model than for some other regulatory areas.

The idea behind the more cooperative regulatory philosophy the FAA had been pursuing is that you need to create a no-blame climate for reporting errors if you want to have errors reported. In a confrontational, punitive environment, people will try to hide errors, not report them. There is a whole body of academic research by my Harvard Business School colleague Amy Edmondson on reducing medical errors in hospitals that argues that the key to getting doctors to report mistakes is a no-blame environment — what she calls psychological safety.

This idea applies to contracting relationships as well.

As this debate — with its relevance to contract management in government — continues, it is important to keep in mind that here we have statistics available about the consequences of the different approaches. According to the New York Times, since the introduction of the cooperative approach to regulation in the FAA, airline fatalities have declined by 65 percent. An academic would want to see more than this raw number before making final judgments (was this just a continuation of an older trends, are there other things going on?), but the number is very interesting.

We don't have a similar dramatic performance metric like this for the results of different approaches to contract management. But if a more cooperative approach to government/industry relationships in airlines has actually produced a decline in fatalities, might we want to hesitate before creating more adversarial relationships in contracting?