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The principal-agent model and the network theory as framework for administrative procedures. Social security in Belgium

The principal-agent model and the network theory as framework for administrative procedures. Social security in Belgium



Coordinating a cluster of independent agencies is not easy to do, given the many factors that must be taken into account. Nevertheless, certain theories can offer a sufficient basis to structure ...

Coordinating a cluster of independent agencies is not easy to do, given the many factors that must be taken into account. Nevertheless, certain theories can offer a sufficient basis to structure inter-organizational relations within the public sector. When speaking about "guidance of agencies", most scientists and even public managers immediately think of the agency theory and its corollary, the principal-agent model. This is, in fact, the theoretical model that was used as the groundwork for all administrative reforms in the last two decades. Nevertheless, another theory may be taking over this dominant position: the network theory.

The paper shown how the FPS Social Security strutcurated the negotiation process of 15 performance agreements with the help of both thories. The paper made also some statements about the validity and the usefullness of both theories in coordinating principal-agent relationship



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    The principal-agent model and the network theory as framework for administrative procedures. Social security in Belgium The principal-agent model and the network theory as framework for administrative procedures. Social security in Belgium Document Transcript

    • The principal-agent model and the network theory as framework for administrative procedures Social Security in BelgiumPaper presented at the EGPA conference “Public Manager under pressure: between politics,professionalism and civil society”, Milan, September 6-9, 2006 (Study group VI : Governance ofPublic Sector Organizations).Authors: Amaury Legrain & Tom Auwers(Federal public Service Social Security, Belgium)The theoretical frameworkCoordinating a cluster of independent agencies is not easy to do, given the many factors that mustbe taken into account. Nevertheless, certain theories can offer a sufficient basis to structure inter-organizational relations within the public sector. When speaking about "guidance of agencies",most scientists and even public managers immediately think of the agency theory and itscorollary, the principal-agent model. This is, in fact, the theoretical model that was used as thegroundwork for all administrative reforms in the last two decades. Nevertheless, another theorymay be taking over this dominant position: the network theory.The dominant model: the agency theory Independence and specializationSince the mid-80s, many OECD countries have undergone fairly important transformations oftheir public sector. One of the best known phenomena is no doubt what the Anglo-Saxons callagentification of the public sector. This refers to breaking down the public sector into smallspecialized bodies ("agencies"). The creation of these organizations generally goes hand-in-handwith the award of a certain amount of management’s autonomy. In other words, this means areduction in interference of the political level and/or certain cross-sector administrative bodies 1
    • (such as the ministries of the Budget or of Public Service) and central departments in the wayadministrative affairs are executed by the agencies (Lupia, 2001; ter Bogt, 1999). These neworganizations can generally be identified by the degree of independence they are given. Somecan freely determine the use of resources made available to them and the organization of theirinternal management (internal autonomy); others, conversely, have the possibility to determine(some of) their assignments and strategic objectives themselves, alongside operationalindependence (external autonomy) (Van Thiel, 2004). Agencies have also been created to dealwith a particular territory (territorial autonomy) or to manage a specific field of expertise(functional autonomy) (Albertini, 1998).These reforms are part of a broader institutional framework that saw OECD countries reform theorganization of their public administrations under the combined pressure of budgetary constraintsand social-economic evolution, to better respond to observed or suggested malfunctioning of theadministrative machine (Pollit & Bouckaert, 2004). The main objective of these changes was toabandon the system of ministries with general competence in favor of organizations specializedin a limited field of competence in order to create expertise and sufficient critical mass toincrease efficiency of public organizations. The smaller organizations were considered to beeasier to manage and consequently they could establish much more productive ties with thepolicy environment (Van Thiel & others, 1999 & Verhoest & Legrain, 2004). Some economictheories support this movement by affirming that greater responsibility for results and betterappropriation of products and services by the civil servants should improve the quality of theirresults and actions (ter Bogt, 1999). Finally, a responsible, specialized civil service would enablethe political authorities to focus more on strategic decisions and less on operational details. Thequality of decision-making within the public sector would be improved and the influence of thepolitical world on public policy cycles would be reinforced (Van Twist, 1998). Guidance of autonomous agenciesThe agency theory underlines the management’s autonomy and the functional specialization ofagencies as a guarantee of the efficiency of the public sector. This newly won autonomy canhardly fail to affect relations between these new agencies and their supervisory authority, whether 2
    • it is political (ministers and their cabinets) or administrative (central departments). According tothis theory, a new, individualized system of inter-organizational relations is therefore set up andcan be defined using the principal-agent model (Shapiro, 2005). The supervisory authority thusbecomes the principal, which, for reasons of efficiency, delegates part of its mission tospecialized implementing parties (the agents). Their relation is mainly governed by means of acontract (formal or no), which determines the rights and obligations of each party, including theresults that the principal would like to see, as well as the resources made available by theprincipal to enable the agencies to carry out the assignment given to them (Stassart & deVisscher, 2005).The principal must therefore trust the expertise and professional know-how of the agent.Nevertheless, the principal-agent model starts with the idea that the players in this new relationact in a rational way and in keeping with diverging interests. Therefore, the principal would liketo get maximum results while devoting as little resources as possible, whereas the agentsobjective is to maximize its resources while minimizing its obligations with regard to theprincipal. This divergence is stronger when accentuated by the fact that the agent has anadvantage. By its specialization and many contacts with the policy environment, the agentmasters the field of expertise and the assignments stipulated in the contract much better than theprincipal. In a rather Machiavellian way, the agent will therefore tend to limit or evendeliberately manipulate the flows of information given to the principal (Pratt & Zeckhauser(1985) In: Stassart & de Visscher, 2005, 1985; Benschop, 1997).To try to counter this information gap and achieve good implementation of the contract, theprincipal endeavors to establish monitoring systems to ensure sufficient, quality informationflows. But these control systems must meet two conditions. First, they cannot be organized insuch a way as to neutralize the advantages associated with the autonomy and specialization of theagent. Consequently, the control can only be exercised by means of the establishment of an exante contract and by systems to monitor the agents’ results ex post. In addition, the controlsystems must take account of the costs they entail. Establishing inter-relational rules andensuring that they are applied well cannot be done without injecting human, financial andlogistical resources. So the control must not entail costs higher than the improvements in 3
    • efficiency produced by specialization and autonomy of the agent (Strausz, 2004; Verhoest, 2000;Kalhil & Lawarée, 2001).It should be noted that other schools of thought began with a much more optimistic vision,considering that the ex post monitoring has the advantage of motivating the agents and makingthem responsible for their results. This motivation is all the greater when the principal’s attitudevaries with the quality of the results by means of financial or structural mechanisms of sanctionsand rewards (Chajewski, 2004).The alternative model: the network coordination theory Definition of coordinationCoordination theories have also looked into changes in relations within the public sector bymeans of an analysis of inter-organizational coordination systems. Various players have tried toaccurately describe inter-organizational coordination. Analyzing the definitions they have usedcan identify the main aspects of coordination: central guidelines or voluntary harmonization ofactivities and actions of several organizational bodies in the same public cluster that try toachieve common objectives in a voluntary, planned way using a method of intervention agreed inadvance (Verhoest & Legrain, 2003). A change in the coordination modelAt the beginning of the 80s, the public sector in OECD countries was organized as a hierarchy:coordination of public policies was done at government level. Once the coordination had beendone and decisions taken, the government communicated them as instructions to the executivelevel (the ministers). Systems of controls and a clear definition of competence ensured correctimplementation of political instructions. (Verhoest & Legrain, 2004). The system suffered from aserious functional deficit that strongly decreased the capacities of public organizations to reachsatisfactory results. This malfunctioning of the administrative machine, in turn, had majorconsequences on the impacts of policies carried out and their credibility. As a result, the very 4
    • credibility and legitimacy of the State was brought into question.The response of the various governments throughout the 80s and the first half of the 90s was tocreate autonomous agencies (deconcentration), decentralize and privatize other public bodies. Asexplained above, the objective was to create more effective organizations and to improve thequality of their results. Moreover, their results would automatically mean improvement of thequality of public policies and their impact on society (the policy outcomes).The main consequence of agentification was the disconnection of the policy cycle: like largemultinational companies with their production processes, public service divided the policy cycleinto different phases (agenda setting, policy formation, decision-making, policy implementationand policy evaluation.) and allocated them to various organizations, each one being responsiblefor all or part of a stage of the policy cycle (Bouckaert, 1997 & 2003; Laegrid & others, 2003).Where a central Ministry was previously active, several organizations (ministries, agencies,private organizations or commercial enterprises) divvied up the work.This organizational proliferation also meant erosion of responsibility of the political-administrative players with regard to the final objectives of public policies, which are theiroutcomes for society. In fact, hyper-specialization of administrative organizations increasesappropriation by those same organizations of the products and the services that they produce(policy output). Greater focus on results indubitably improved the quality of those results, butalso clouded the fact that these results are only one link in a much larger chain of production (thepolicy cycle) whose aim is to reach much more general objectives (outcomes).The chain of hierarchical command corresponding to Weber’s bureaucracies no longer applyingfor public administrations, the implementation of the policy cycle was confronted withcoordination problems: the quality of various policy outputs was not enough to guarantee thequality of policy outcomes. A different system of production within these organizations had to becoordinated to maintain coherence and unity of action within the public sector (Van Twist &others, 1996; Brans and others, 2003). 5
    • Policy cycle merged Monolithic Organizational structure 1 proliferation 3 2 Policy cycle disconnected Figure 1 : Disconnection and re-connection of the policy cycle A new model: the networkThe new reforms targeting more effective integration and coordination had to take account of themanagement’s autonomy and the functional specialization of public organizations. There couldbe no question of going back to a pure hierarchy (reinforced guidance and control, detaileddefinition of competence) and new coordination estimates had to be introduced. In Anglo-Saxoncountries, certain initiatives were launched to introduce a market system and competitionbetween various public bodies (National Service and Community Care Act of 1990 and theCompeting for Quality initiative in 1991 in Great Britain, plus the Pricing Policy Advice initiativein New Zealand 1993). But these experiments were limited to those countries and were a limitedphenomenon over time (Bouckaert, 2003). Most of the counties chose another system for a newcoordination model: the network system, based on collaboration and integrity of publicorganizations.This new relational model is based on the desire of the public bodies to do a good job and 6
    • therefore the almost automatic willingness to collaborate in a joint strategy and to adapt theiractions and results to the needs of other organizations and to those of the global policy cycle.Intra-organizational relationships are governed by rules such as voluntary participation, increasedresponsibility of the various organizations, mutual tolerance, a feeling of equality and partnershipbetween organizations. Coordination is done by means of self-regulation of the organizationsinvolved on a voluntary basis. (Hegner, 1986; Thompson and others, 1991).This voluntary basis can be explained …1 By functional interdependence at the level of the achievement of public policies: in an integrated production cycle of public policies, the bodies involved are generally dependent on other organizations for the decisions which must be taken, information to be provided to them or services to be delivered to them2 By increased pressure from the outside world demanding that State bodies act as a single player;3 By an increasingly uncertain political and social environment that encourages the organizations to establish common systems of defense.Interactions between the organizations will be even easier if the future network shows a certainamount of stability. Stability refers to the absence of competition, the absence of deep-seateddivergence of views concerning the existence of the network, its objectives and its operatingrules, the existence of a cognitive and cultural base common to the organizations and the absenceof major structural differences between the organizations. The nature of the environment to becoordinated and the desire of the participants to collaborate are important, and not only this, theorganizations capacity to move within the network will influence the level of integration of thenetwork. Consequently, the organizations must have a certain freedom of movement anddecision making (autonomy) and good internal organization in order to be able to respondeffectively to demands and evolution of the network (Verhoest & Legrain, 2003).According to Verhoest & Legrain, the integration of the collaborating organizations can only beachieved gradually. Setting up a structured system for exchanges of information and consultationbetween the organizations are the first two steps in establishing a network. Only after this can 7
    • more complex systems be put in place such as joint decision--making processes or the integrationof various systems of production. (Verhoest & Legrain, 2003).Belgian Social SecurityIntroductionThe Belgian Social Security system as we know it today began just after the Second World Warwhen systems set up by the trade unions and employers were generalized to cover the entirepopulation, under the joint responsibility of the State and the social partners. Belgian SocialSecurity is meant to cover the consequences of nine major risks by means of a financialintervention. These are referred to as the branches of Social Security. Risks Intervention of social security Illness Intervention in the cost of illness Loss of income in case of illness Incapacitation allowance Loss of income in case of maternity Incapacitation allowance Loss of income in case of Incapacitation allowance incapacitation Old age or premature death Retirement and survival pensions Industrial accidents Compensation for industrial accidents Occupational illnesses Compensation for occupational illness Family charges Family allowance Unemployment Unemployment allowanceThese financial interventions are financed by means of contributions from the income of workersin the system, employers’ contributions and State subsidies. The determinate weight of the socialpartners in financing Social Security and their good organization enabled them to be consideredlike shareholders in the system (alongside the State) and therefore to be involved in thedevelopment of public policies and in the management of public institutions active in the sector.Cover of risks and the means of financing vary with the category of workers. In Belgium thereare three major regimes: the regime for employees, the regime for self-employed workers and theone for civil servants (DGSOC, 2000). 8
    • Under the supervision of the central departments of the State, management of Belgian SocialSecurity lies essentially with decentralized institutions that enjoy a more or less autonomy. Theseinstitutions are broken down into two levels: the primary network and the secondary networks.More than 2000 institutions (most of them private) are involved in all three schemes. However,management of Social Security has been entrusted to a certain number of public or semipublicinstitutions.These organizations form what is referred to as the primary Social Security network and theirassignments are to collect social contributions, to distribute the financial resources allocated toSocial Security and to manage one of the branches of Social Security (preparing regulations,forecasts and analysis, control of payment organizations, etc.)Across from these organizations are the payment bodies, grouped by branch and by network: thesecondary networks. In fact, for certain branches of Social Security, the task of payingallowances is given to partner institutions, established by private initiative but controlled by oneor several public organizations. These payment bodies are in charge of managing individualdossiers which means investigating the files (awarding or refusing the rights to allowances) andpayment of social benefits.Contractualization policyFifteen organizations, most of them coming from the primary network, received a performanceagreement in 2002 for 10 of them and 2003 for the five remaining institutions. By means of thesecontracts, each organization establishes a strategic medium-term plan (three years) in which itundertakes to reach a certain number of operational results concerning service to the public andmanagerial improvement. The contract also determines the resources allocated to theseobjectives, those being the operating budget for the organization for the first year, and for the twofollowing years, a growth margin (gross amounts or increase in amounts as compared to the firstyear).Belgium bound the introduction of a contractual relation to granting greater autonomy with 9
    • regard to internal management. In fact, publication of the first performance agreement, called theadministration contract, was a formal condition for these institutions to be recognized in theircategory as Social Security Public Institutions (SSPI) and to take advantage of their newmanagement’s autonomy.As concerns financial management, greater responsibility involved dividing the annualexpenditures’ budget into a policy budget and an operating budget, the possibility of long-termplanning based on the methods of calculations contained in the performance agreement, andgreater flexibility and possibilities for budgetary transfers (re-allocation between variousassignments in the same budget year and between the various years for investment credits). Themanagement of human resources was modernized by the introduction of job profiles, a personnelplan replacing the imposed organizational framework,, the authorization to choose the mostsuitable personnel plan and status. In addition, these SSPI were given full ownership of thebuildings they occupied (Auwers & Robben, 2005).The new autonomy was real, but compared to that of public companies or foreign agencies, it wasnevertheless limited. In addition, because of the presence of two commissionars from thegovernment on the management committee, the Belgian State still gave itself the right to lookinto the decisions of the institutions ex ante. The commissionar representing the policy ministercould block a decision of the SSPI that it considers counter to the regulations, general interest (=ministerial policy) or the terms of the performance agreement. Financial transfers, considered bymany to be a crucial aspect of the reform, alongside the performance agreement, could only becarried out if the SSPI had received approval of the commissionar representing the Ministry ofthe Budget.This autonomy and responsibility had to be combined with a change in the relationship betweenthe supervisory authority (the ministers and ministries) and the SSPI. The key to the change wasthe establishment of partnerships within which each party was considered in the same way."Supervision" also undertook to put more emphasis on monitoring ex post that on ex ante control(Legrain & Larmuseau, 2005). 10
    • Negotiating the performance agreements for 2006-2008In 2004, the ten first performance agreements for 2002-2004 were extended for one year to allowfor a coherent, efficient approach to the 15 contracts by the establishment of a common timetablefor the negotiation and conclusion of the second-generation agreements. In 2005, the contractingparties got together to meet the challenge of organizing these negotiations. During thediscussions on the first contracts, negotiations were deliberately limited. The budgetary situationallowed the Federal State to provide additional funds to finance modernization of the SSPI’s ICT.Consequently, the institutions had no reason to dispute the budgets that were granted. Inaddition, due to lack of interest or a desire to facilitate the discussions, the representatives of theState had accepted the objectives contained in the contracts with almost no discussion.The situation in 2005 was very different. The Belgian State had decided not to authorize moreexpenditures than those allowed by a strict budgetary policy. In addition, under the impetus ofseveral assessments and audits that strongly criticized the State’s lack of interest, the State alsodecided to enter on a serious discussion with the SSPI with regard to the output level proposed inthe performance agreements.Coordination of negotiations was entrusted to a central department, the Social Security Federalpublic service. This was not an easy job. Many players and organizations had to be involved inthe process. 11
    • Belgian government Minister of Ministre Policy Minister of Ministre Ministre Policy the Civil Ministre Minister of the Civil de Minister Tuelle de Tuelle Intercabinet working Minister of Service de Minister Tuelle de Tuelle Service groups the Budget the Budget Support to the Support to the political political level level FPS Soc FPS Soc FPS Budget FPS Empl FPS Budget FPS Empl Support Commissionar Commissionar Commissionar Commissionar Support of the Minister of the of the Minister of the Policy Minister Concertation en task Budget Policy Minister Budget division Control, Control, following-up following-up concertation concertation SSPI’s College CEO CEO CEO CEO CEO CEO CEO CEO CEO CEO Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Mgt-board Social Security Social Security Social Security Social Security Social Security Social Security Social Security Social Security Social Security Social Security Public Public Public Public Public Public Public Public Public Public Institution Institution Institution Institution Institution Institution Institution Institution Institution Institution Figure 2 : The contracting “pandemonium” in the Belgian social securityAt the level of the Federal State, the contract is signed by the Policy Minister(s), the Minister ofPublic Service and the Minister of the Budget. Each of these appoints a governmentcommissionar in charge of administrative supervision and monitoring of the implementation ofthe performance agreement. The commissionars and the political level are supported by centraldepartments : the Social Security Federal public service and by the Budget and ManagementControl Federal public service (the Budget Administration). Other federal public services such asEmployment, Labour and Social Concertation are also involved, but generally in consultationwith the Social Security Federal public service. At the level of each institution, the agreement issigned by the institution’s CEO (the administrator-general) and by a delegation of themanagement committee. The delegation of the SSPI is assisted by the central services of theinstitution. 12
    • During negotiations, a Board grouping the 15 CEO’s (the College of Social Security PublicInstitutions) must also be taken into account. This coordination body appeared in the mid-90s,enabling the institutions to speak with a single voice. This is also the epitome of a place wherethe common synergies and initiatives of the 15 institutions on subjects concerning managementof Social Security public institutions, HRM policy and common projects are discussed andcommon solutions are found. (Legrain & Larmuseau, 2005).From a purely formal and legal standpoint, the Social Security Federal public service is notdirectly involved in contractualization. The performance agreement is considered by the sector asa direct link between the political authority and the institutions, without any interference from acentral department. Even the assignment to monitor the implementation of the performanceagreements was entrusted to individual civil servants, appointed directly by the ministers.The framework for the negotiation of contracts for 2006-2008Inspiration based on the theoretical frameworkThe theories explained above were used as a basis for structuring and guiding the negotiations ofperformance agreements. While respecting the spirit and the background of contractualizationwithin Social Security, reading these theories enabled the Social Security Federal public serviceto draw certain conclusions for monitoring the discussions.Based on the agency theory, the Social Security Federal public service has defined the followingbases:1 The relation between an SSPI and the supervisory authority is determined by the specialized field of expertise. The field of expertise changes from one SSPI to another, and therefore the discussions on each contract are extremely different from one case to another. 15 different, individualized processes had thus to be set up;2 The SSPI and the Belgian State have diverging interests. Consequently, the discussions may be delayed due to a conflict of interest; 13
    • 3 The SSPI has an informational advantage over the representatives of the Belgian State with regard to the objectives of the performances agreements. This gap will have to be filled during the preparatory phase and the negotiations themselves;4 The discussions entail transaction costs for both the SSPI and the Federal State. To reduce these, a coordination function should be established. In addition, each organization should determine a single contact point to avoid dispersion of communication (and costs for re- coordinating);5 The position and attitude of the Belgian State will be determined in part by the results already achieved under the first performance agreement. At the very least, the quality of the dossier presented by the SSPI during negotiations will have some influence on the result of the negotiations.Using the network theory, the Social Security Federal public service has defined the followingbases:1. Negotiation between organizations results in the creation of a temporary network including all organizations involved in the discussion;2. The negotiations will be based on the principle of self-regulation of the players. The central coordinating role will therefore be minimal: this network should be governed by flexible rules approved by all and respecting the autonomy of each party;3. The principle of confrontation contained in the negotiation principle represents an obstacle to good collaboration. The network should be stabilized insofar as possible to enable the discussions to take place in an optimal way. This means: a. that the network can only function if common rules governing relations between the contracting parties are determined before the beginning of the discussions (activation of the network); b. that the network can only function if all stakeholders in the process accept the principle of contractualization and the autonomy of the SSPI (common cognitive base);4. The discussions will be handicapped by the remaining hierarchical power that the State has over the SSPI. The desire to act in keeping with network principles means that the State 14
    • should not be tempted at any time to pull rank in order to close the discussions. The negotiation process should try to control this risk;5. Exchange of information and structured consultation between the Belgian State and the SSPI will guarantee optimal decision-making during discussions.Network rules: structuring the negotiation processBased on the theoretical framework, the Social Security Federal public service began with theprinciple that the 15 different networks should be coordinated and be given operating rules. On aproposal from the public service, rules were established and approved by the contracting parties(by the institutions on 3 December 2004 and by the ministerial cabinets on 26 January 2005).Setting up framework for negotiations is equivalent to structuring a decision-making process.According to the ISO 9001:2000 standard, a process is a set of interactive or interrelatedactivities transforming inputs into outputs. A process generally moves foreword in an unevenway: the rules, setting the framework for the process, are drafted in a general way and thereforecan evolve during his implementation. Managing such a process requires improvisation skills(De Beuk, 2006). In addition, the rules cannot counter the network principles: organizations areindependent and free. The rules are not binding and each party can withdraw at any time orrequest a change in rules.This structural instability of a process must not prevent the stakeholders from drafting a commonframework whose objective should be to determine basic operating rules, general standards andmajor guidelines that the network plans to respect. So in fact, these rules are more terms of thereference framework than hard and fast obligations.Setting a framework for a process means asking all kinds of questions about the route it willprobably take place. These include:1 How do these processes move forward?2 What are the needs for inputs and expectations for outputs?3 Who will be involved and what will be the role of each party? 15
    • 4 What quality standard should the process and/or its final result meet?5 When and according to what timetable should coordination be organized? Players and their roleThe mapping process, using a network vision, starts with the principle of co-responsibility of thecontracting parties. For each process, the Belgian State and the SSPI concerned is responsible tosee that it goes forward smoothly and for its results, namely an agreed performance agreementsfor the years 2006-2008.As we have seen, the contract should be negotiated and concluded between the Belgian State andthe SSPI. Each contracting party is represented by persons or bodies that have decision-makingpower, meaning the power to approve or refuse the (temporary or final) results of thenegotiations. These are decision takers. For the Belgian State, they are the federal governmentand the ministers involved, and for the institution, the management committee. These decisiontakers do not have the time to negotiate a contract themselves. For this reason, they appointrepresentatives – negotiators – who take part in the discussions and make progress reports on theresults already achieved. The minister’s political advisers will thuss represent him, while theCEO will speak in the name of the institution.These persons will be backed up by persons or organizations (advisors), whose experience andexpertise will be used during the discussions. They are government commissionars, centraldepartments and the SSPI administrations. These advisors will be asked to give an opinion on theproposals of the other party to the contract. Because of its lack of specialists, a Social SecurityFederal public service decided not to advise the policy minister, fully delegating this role to thecommissionars representing the policy minister The Federal public service proposed to play therole of the coordinator of the process, in other words to monitor the 15 negotiation processes,organize the Secretariat and provide administrative support to the negotiators and their advisors.The College of Social Security Public Institutions would coordinate the activities of theinstitutions whenever common decisions were to be taken. 16
    • Structuring the decisionsTo structure the 15 negotiations, the Social Security Federal public service used chainmanagement. This type of management is based on the principle that any production process canbe considered as a sequential chain of sub-processes that are functionally dependent on eachother. Consequently, to be correctly implemented, each phase of the process depends on theresults of the previous phase; its own results then serve as an input for the subsequent phase(Vanduivenboden & others, 2000). Original Temporary Final input Step 1 Output Step 2 Output Figure 3 : The chain management processThe final output of the negotiation process is clearly a performance agreement for the years 2006-2008 agreed by all stakeholders in the process. More particularly, the parties must agree on thenature of the operational objectives to be introduced in the contract, the proposed output level, theoperating budget covering the first year and the procedures for increasing budgets for subsequentyears. The temporary process outputs will be all the decisions and compromises that must bereached in order to obtain a final, global compromise, phase after phase, on all these aspects.This gradual decision-making can only be done if secondary processes deliver the informationand decisions needed for the conclusion of the performance agreements. Four secondaryprocesses were identified: 1. The budget process: although the SSPI are financed by the Social Security budget, rather than the Belgian State, the establishment of annual budgets corresponds to a regulation timetable. The operating budget for 2006 is one of the cornerstones of the contract, and the negotiation process must take account of the various stages and outputs of this process; 2. The decision-making process within each party to the contract: negotiators are the ones 17
    • who establish the compromises, but they must be backed by the decision takers. The negotiation process will therefore depend on the way decisions are taken in each party to the contract: joint management/labour decisions for the SSPI and the political process for the State; Internal decision-making Internal decision-making Belgian State Belgian State Quality check Quality check Quality check Quality check budgetary budgetary process process Yearly Yearly NEGOTIATING NEGOTIATING THE THE CONTRACT CONTRACT Internal decision-making Internal decision-making SSPI SSPI Figure 4 : Secondary processes during the negotiation of the performance agreements 3. Quality checkup: evaluation reports on the implementation of the first performance agreements identified certain weaknesses with regards to the operationalization and clarity of objectives set down in the contracts (about 12% of the objectives observed). The Social Security Federal public service was asked to analyze the proposals for contracts on the basis of the technical quality of the objectives (this is not an analysis of their suitability) and to refer to the cabinets of the supervisory ministers.The negotiation process is therefore based on a gradual approach to decision-making, meaningthat the number of parties to the contract agreeing to the compromise, and the number of theplayers who approve that compromise, increase as the contract is executed. In other words, the 18
    • negotiation process will consist of organizing a coalition of bodies that by the end of the contractshould progressively include all stakeholders and defend all parties to the contract: 1. Decision step (1): the SSPI proposes a series of objectives, an output level and an estimate of its financial needs to the policy ministry. The SSPI and the ministers’ advisers approve the output level and the budgetary proposal: together they compile a dossier and develop a strategy for the budgetary discussions; 2. Decision step (2): the SSPI and the policy minister’s advisers defend the proposed budget for the contract and the annual operating budget with the representatives of the Minister of the Budget. Any additional application for funds (as compared to the indexed budget of the previous year) is negotiated. The parties agree on a dossier to be sent to the government for approval: during the political negotiations, the policy minister and the minister of the Budget defend the dossier together; 3. Decision step (3): if the agreement reached between the parties is not followed at the time of the approval of the annual operating budget for the SSPI by the Belgian government, the contracting parties must meet again to adjust the contract (in other words the output) to the budgetary decisions. 19
    • Budget Budget Prefiguration Prefiguration DS 2 DS 3 Gov 2006 2006 budget 2006 budget 2006 Gov Proposal Proposal Bud getarry discussions budget budget decision decision Toets door Toets door begroting begroting Trilaterale Trilaterale meeting meeting Proposal Proposal Approbation, siganture and publication Trilateral Approbation, siganture and publication meeting Trilateral budget meeting budget Phase 4 200 6 200 6 P roposal Proposal contract contract Phase 6 + file + file Process mapping Phas e 1 budget budget File for File for 2006 2006 gov gov Contract Contract definition definition Attemps AttempsStrate gical discussions Toets door Toets door ministers ministers Voogdij- Voogdij- meeting Bilateral meeting Bilateral Phase 3 Informal Proposal Informal Proposal output output Bilaterale Bilaterale bilateral bilateral meeting meeting contacts contacts Phase 7 Phas e 5 Phase 2 Quality check Fase 8 Analyzing quality Analyzing quality Analyzing quality Analyzing quality Analyzing quality Analyzing quality ouput ouput ouput DS 1 ouput ouput ouput Preparation Negotiation Conclusion Figure 5 : Mapping the negotiation process 20
    • Quality frameworkMany methodologies (including ISO 9000:2001) emphasize the importance of quality standardsto be integrated into process. The quality framework for the contracts will refer to all standardsthat are to apply to the drafting of future performance agreements. The implementationevaluation of the first contracts clearly showed two general weak points: lack of clarity in thedefinition of objectives and lack of integration between the output level and the allocated input.As concerns the first problem, the contracting parties define quality standards to optimize clarityand transparency of objectives contained in the contract. These drafting principles pertained tothe legibility of the contracts, the operationalization of objectives, the clarity of the proposedoutput level, the use of performance indicators, compliance with SMART principles and the useof risk analysis. The Social Security Federal public service was asked to analyze the proposalsfor the contracts from this standpoint and to communicate the results of these analyses to thepolicy ministries’ advisers. Operating costs & HRM costs Main mission Investments Investments Projects Operating costs & HRM costs Figure 6 : Splitting the operating budgetThe second quality framework was meant to improve the correspondence of inputs and outputs inthe performance agreements. There was no question of setting up an obligation for theinstitutions of implementing global output-oriented budgetting e: this kind of reform would 21
    • require many adaptations such as the introduction of analytical accounting or a cost calculationsystem. The idea was to divide the operating budget into two parts: a budget allocated to thebasic missions and a budget devoted to projects. The missions are generally determined on ahistorical basis and it is difficult to establish an output-oriented budget without undertaking majorreforms. Consequently, this budget could continue to be calculated on an incremental way. Theprojects, on the other hand, have a clear beginning and end: it is therefore much easier to budgetthem using amounts calculated according to a zero-based budgeting method. A subsidiary budgetincluding investments for assignments and for projects was also foreseen in order to bettermanage the evolution of investments. The timetableEstablishing a timetable is far from easy, since the negotiations could be stopped at any time dueto diverging interests. In addition, the process depends on a good implementation of secondarypolitical processes, which has its own timetable that is far from stable. The only dates that couldbe determined were those associated with the annual budgetary procedure. Each institution mustcommunicate an estimate of its financial needs for the following year to the BudgetAdministration by 15 June (the “prefiguration”). The government decides on its budget and onthe budgets of the SSPI in a budgetary "conclave", which is generally held late September/earlyOctober. Budgetary negotiations (first trilateral meeting) therefore cannot take place before 15June and the dossier for the government must be ready by the end of September. The other stagesmust be carried out by 31 December 2005 for contracts taking effect on 1 January 2006.How the negotiations went forwardCoordinator and self-regulationEstablishing a central coordinator could seem contradictory to the principle of self-regulation ofthe network. Under normal circumstances, coordination should be the responsibility of allmember organizations in the network, and not a central coordinator. Nevertheless, organizingeffective coordination entails additional transaction costs. For this reason, some networks 22
    • decided to dedicate part of the coordination assignment to a central body (Verhoest & Legrain,2003).Coordination of a network means structuring inter-organizational relations occurring within thesame network. The coordination mission consists of ascertaining that the negotiation goesforward as good as possible and complying with rules established beforehand and accepted by all.During negotiations of the performance agreements 2006-2008, this mission included thefollowing tasks: 1. Establishing common rules: the coordinator must ascertain that common operating rules exist, are known to all and are accepted by all. The coordinator must also be sure that the interpretation of these rules is consistent. As concerns negotiations, there must be a consensus on the framework established and on its concrete interpretation (needs and results of various stages, timing, concrete organization, identity of participants, etc.). These rules (except for the new budgetary framework) were developed by the parties on a proposal of the Social Security Federal public service and after adaptation based on comments made by each party. During the negotiation process, the Social Security Federal public service proposed an interpretation to the parties concerning the concrete organization of the stage to be carried out (participants, objectives, needs for inputs and expected outputs). After comments and adjustments by the negotiating parties, the stage was effectively launched; 2. Control of the application of the rules: the coordinator must not only ascertain that rules exist but also see that the rules are applied. This control consists first of monitoring the process and then of developing corrective measures if the negotiation framework is not respected. In the negotiation framework, the Social Security Federal public service monitored the progress of the negotiations, and at any time it could communicate the level of compromise that had been reached for each process. When the process began to go in a direction other than the one that had been stipulated by the framework, the Social Security Federal public service proposed to do mapping, but the final decision lay with the parties to the contract; 3. Supporting coordination relations: the coordinator’s function is not to carry out the jobs of 23
    • the stakeholder organizations in their place, but to ascertain that each actor fulfills its role. For this reason, the coordinator must at times interfere in the inter-organizational discussion. It can offer organizational support to bodies that must work together: secretariat, providing material and premises. The coordinator may also be involved in the content of the coordination itself by taking the position of a neutral person supplying the organizations with an objective, nonpartisan opinion, drafting reports on discussions and proposing compromises for any stumbling blocks. The Social Security Federal public service clearly announced that it would not take position in the discussions between the contracting parties and that it was only offering organizational support for the negotiations. Nevertheless, its involvement in the discussions was not nil. The Federal public service made a prospective interpretation of the assessment reports on previous contracts and communicated the results to the ministerial cabinets so that they could have all necessary information. In addition, in the global negotiations between the cabinets and the SSPI, the Federal public service was asked to draft reports on the meetings. When the negotiations pertained to the contractualization system, the parties also used his expertise in contract management. Finally, during the final adaptations, the Federal public service played the role of an intermediary for some contracts between the Budget Administration and the institutions concerned in order to reach an overall agreement on those contracts;4. Ensuring quality coordination: as stated previously, quality control is crucial for the good completion of a process. The coordinator must ascertain that the quality standards, like the basic network rules, are known, understood and applied by all. Standards proposed by the Federal public Service (quality of the output) and by the institutions (budgetary framework) and were approved in the same way as the rest of the negotiation framework. The Social Security Federal public service analyzed the draft contracts on the basis of quality criteria and communicated the results of these analyses to the ministerial cabinets. As concerns compliance with the new budgetary framework, the Budget Federal public service offered its services and the control was done during the trilateral budgetary discussions. 24
    • Process mapping 4 3,5 Quality control 3 Follow up process 2,5 2 1,5 1 0,5Substantive discussion 0 Organizational support Process adaptation Quality framework Mapping interpretation Central coordination FPS Social Security Selfcoordination Figure 7 : Repartition of the coordination tasksThe coordination tasks described below can be either totally executed by the network memberorganizations or totally delegated to a central organization. In reality, to reduce transaction costs,the network delegates coordination to a central body but nevertheless maintains a share inoverseeing the inter-organizational relations. This was the case for the negotiation of theperformance agreements 2006-2008.How the negotiations actually wentThe negotiations took place according to the framework established until November 2005. Aletter summarizing the State’s expectations for each future performance agreement was sent tothe SSPI around May 2005. Between June and September, bilateral and then trilateral meetingswere organized to prepare for the governmental decision in October. Between 7 and 9 October,the budgetary conclave met and set the operating budgets of the institutions for 2006. At this 25
    • stage, new trilateral meetings had to be organized to adjust the contracts to the governmentaldecisions on the budget, to determine the method of calculation for the years 2007-2008 andabove all to reach a final consensus on the contracts. These meetings did actually take place, but,for two reasons, they did not reach a final agreement.First of all, the SSPI did not accept the political decisions: instead of adapting their contract,certain SSPI rejected the operating budget decided by the government and asked to continuenegotiations, arguing that political refusal would jeopardize their financial balance or theimplementation of certain major projects. This institutional "protest" was fueled further as aresult of a misunderstanding that occurred in the first budgetary negotiations concerning ancillaryincome. Some SSPI in fact do have their own additional income stemming either from paymentfor services provided to third parties, or resulting from efficient internal management (rent frombuildings, purchase price of supplies below expectations, interest on investments, etc.). TheseSSPI are therefore financed by the Social Security budget as well as by their own income. In thefirst trilateral negotiations, the SSPI came with an amount that they considered to be equal to thefinancial resources that the Social Security budget would supply to them (in addition to anyincome of their own). The Budget Administration, for its part, had a totally differentinterpretation because it considered that the amount allocated and approved was an authorizationof expenditure and that this amount included all expenditures of the institutions (and thereforethose covered by their own income as well). Because of this situation, a new political decisionhad to be made for the 2006 budgets for seven institutions (out of 15).After that, global negotiations concerning 15 contracts had to be organized. During the firstnegotiations, each SSPI proposed in its contract the commitments that the Federal State wouldmake to the SSPI. Although the SSPIs College coordinated them, many aspects of theseapplications differed from one contract to another. Representatives of the Federal State wanted tomake commitments in the same way for each performance agreements and therefore asked tonegotiate a text common to the 15 contracts. Shortly after the budgetary decision in October2005, the Budget Administration considered that the chapters of the contracts in which the SSPIbudgets were included, had some information that was not necessary and was even incontradiction with budgetary regulations. The Budget Administration therefore asked to 26
    • negotiate a common budgetary chapter. At the time of the "last" trilateral negotiations, globalnegotiations had just begun and the individual negotiations in November 2005 could at mostconclude an agreement pertaining to the individual output level to each contract.Global negotiations were organized between the cabinets and a delegation of the SSPIs’College.These negotiations were far from easy and lasted until February 2006. There were manystumbling blocks, as the institutions accused the "budget" component of the State of questioningthe principle of their autonomy (as concerns budgetary transfers), and the representatives of theState feared that if relations between the State and the SSPI were too horizontal, this wouldpreclude the State’s potential to take action.When these common chapters were integrated, a third problem arose. After analyzing the newdraft of the contract, the budget Administration made substantial criticisms of the contract, evenwith regard to the individual output level that it was supposed to have approved in November atthe last trilateral meetings. In addition, the problem of the budgetary allocations for 2006 had notbe settled because the budgetary chapter did not provide for a solution on the SSPI’ own incomefor the 2006 budget and all budgetary problems did not pertain to questions on this ancillaryincome. At this time (March 2006), the State took over the whole process in order to find asolution to the remaining problems. The SSPI were asked to communicate their most recentopinions and arguments concerning the comments from the Budget Administration andconcerning their budgetary demands. These points were discussed in inter-cabinet workinggroups and the results of these exclusively political negotiations had to be integrated by the SSPIin their performance agreements. This high handed way of dealing with the discussions must beput in context, however, because most of the requests from institutions (in any case as concernstheir budgets) were accepted (15 March 2006).The solution consisted of re-indexing the budgets of the 15 institutions. The rise in the index in2006 was lower than anticipated in the discussions in October 2005; consequently, by re-indexingthe 15 operating budgets downward, the political authorities could liberate a budgetary surplusroughly equal to the budgetary demands of the SSPI 27
    • Négotiations foresseen by planning Political negotiations Political negotiations between ministries’ advisers between ministries’ advisers Political Political Political negotiations Political negotiations about the budgetary about the budgetary compromise compromise between ministries’ between ministries’ demands demands advisers about the advisers about the Political negotiations Political negotiations budgetary demands budgetary demands between ministries’ between ministries’ Political Political advisers about the new advisers about the new compromise compromise remarks of the Budget remarks of the Budget Government approval Government approval Government decision Government decision Trilateral contacts Bilateral contacts Trilateral contacts Bilateral contacts Trilateral contacts :: Trilateral contacts Trilateral contacts :: Trilateral contactsPreparationsPreparations integration of common integration of common agreement on agreement on Adaptation of the Adaptation of the chapters chapters individual chapters but individual chapters but contracts :: fully respect contracts fully respect The Budget « asked » for The Budget « asked » for 7 SSPI rejects the 7 SSPI rejects the of the political of the political changes in the individual changes in the individual allowed budget allowed budget compromise compromise chapters chapters Political negotiations Global negotiation :: Global negotiation budgetary framework budgetary framework Global negotiation :: State’s engagements Global negotiation State’s engagements Global negotiations June-October 2005 June-October 2005 November 2005 – Janurary 2006 November 2005 – Janurary 2006 Februari – March 2006 Februari – March 2006 Figure 8 : Implementation of the negotiation process 2005-2006 29
    • It should be noted that this reallocation of funds was severely criticized by certain not-involvedcabinets and ministers (including the Prime Minister), who considered that the agreementseriously jeopardized the balanced budget and that the performance agreements included veryfew commitments to the fight against social fraud and to promote administrative simplification.It took another 15 days of political negotiations between the involved ministerial cabinets (of thePolicy Ministers and of the Minister of Budget) to convince their unwilling fellow cabinets.After intensive discussions, the Belgian government approved the agreement and the 15performance agreements during the Council of Ministers on 31 March 2006.The theories put into the practiceThe intention of this paper is not to put the agency or the network coordination theory intoquestion on the basis of the experience of the negotiations of the performance agreements 2006-2008. Nevertheless, we feel it is important to add to the theoretical discussion on administrativepractice by "testing" the initial hypotheses on the basis of the effective implementation of thisprocess.The principal-agent relation of authority is not an individualized relationIt is very clear that the individualistic vision of relations between the State and the agents cannotencompass the complex nature of inter-organization relations in the public sector. Indeed, itrefers to a single principal, when in fact the agencies receive information and different,sometimes contradictory, instructions from several principals. In the case of Social Security, avery clear difference was observed between representatives of the supervisory authorityresponsible for the social policy and the supervisory authority responsible for the budgetarypolicy, and at times they had considerable problems reaching an agreement before meeting theinstitutions. From the standpoint of the agents as well, there are many players. Several agentscan be active in the same fields of expertise, but for different territories or for different stages (orsub-stages) of the public policy process. For these reasons, relations may become global to thepoint that several principals hold simultaneous discussions with several agents on several 30
    • possible themes: a common project, the commitments binding the representatives of the principal,the establishment of a contractual framework, etc.The network theory therefore seems more adequate to provide a response to this kind of situation.Nevertheless, the dual vision of contractualization should not be rejected out of hand, because ithas certain advantages. First of all, it forces representatives of the State to come to an agreementand therefore be consistent in their communication with regard to the agents. In addition,globalization of the relations reduces the involvement of the representatives of the State in theindividual assignments of their agents. The political authority has also to be involved andinformed in all the individual and administrative field of expertise : this can be only by keepingan individual and specialized relationship between the political authority and each of hisexecutive agents. . Finally, as was observed at negotiations, globalization of negotiations entailsa risk of seeing principals pull rank in their relations with the agent and this should be avoidedwhenever possible.The principle of the individualized relation should be maintained, but cross-organizationalinstruments should be set up to coordinate horizontal actions and discussions, as bestpossible, between the various components of the various principals and agents.There are diverging as well as converging interestsPractice of negotiations clearly showed that an agent and its principal start with diverginginterests, particularly as concerns the budgetary framework for the implementation of the agent’smissions. The agent generally wants to be able to achieve as many objectives and products aspossible, and therefore hopes to have the budgets needed, whereas the supervisory authority, onthe other hand, has the logic of a balanced budget in which many conditions must be met beforeany (limited) funds are made available. This difference in views can undermine the commoncognitive base needed for good collaboration between the various parties. In fact, fear ofexceeding the budget can encourage representatives of the State to reinforce their control over theagents and therefore bring their independence and the entire underlying system of relations intoquestion. 31
    • Nevertheless, the SSPI and the representatives of the State were undeniably moved by a commondesire to reach an agreement, based on converging interests, although other strongly divergingopinions and commitments considerably slowed down the discussions. Surprising was the factthat representatives of the policy authority and the institutions which from the very start defendedthe same positions against the Budget representatives while, according to the principal-agentmodel, they were supposed to be opponents. It should also be noted that the interest of therepresentatives of the budget also converged towards those of other players when the compromisewas attacked by other ministerial cabinets.The principal(s)-agent(s) relations are therefore based on a principle of confrontation, butalso one of collaboration by the gradual establishment of a consensus. These relations musttherefore take into account both diverging and converging interests.The State is not as weak as one might think, and the framework must be established for its actionThe principal-agent model also begins with a vision of the principal’s possibilities that is almost acaricature. The principal is supposed to have little information, and to be forced to invest in goodmonitoring systems in order to counterbalance its "natural" weaknesses. This is forgetting thatthe ministers advisers often have an administrative background in the sector in which the agent isactive and, in addition, the information gap, a cornerstone of the agent’s power, does not seem tocome into play when the principal-agent relations are globalized. In fact, because of theirposition, it is much easier for the State’s representatives than for those of the agents to comparefields of expertise and go beyond the specific context in order to have more general discussions.In this kind of negotiation, hyper-specialization is more of a handicap than an advantage.Finally, from a purely legal standpoint, it must be recalled that the State maintains hierarchicalrank over its agents, even when they are highly autonomous. The State is the only guardian ofthe general interest, and at any time if the situation so requires, it can limit the autonomy or thepartnership relations that it has awarded. This situation will be even truer if the agent’s autonomyis limited from the start. Agents must never be misled by the promise of a totally equalitarian 32
    • relation, which, sooner or later, will be questioned in practice, or by administrative law.In an agent-principal relation, the framework that should be established does not pertain tothe information gap, but to the dominant position of the principal. This position should beintegrated and recognized by the schemes describing the relations that must define thelimits under which the State’s hierarchical power should be exercised over independentagents under contract.Many factors influence the degree of collaboration, but nothing is as effective as the will to worktogetherDuring negotiations, many factors play a role either accelerating or slowing down discussions.The good organization and internal organization of the SSPI and the coordination that alreadyexisted between them (particularly by means of the SSPIs’ College) enable them to enter fairlyeasily into either individual or global negotiations. Conversely, the misunderstandings betweenthe various components of the State (that can be analyzed like poor internal organization if theState is considered to be a single player) means that diverging information was communicated tothe institutions which sometimes did not know what the official position of the State was andhow they could react to it. As we have seen, a certain amount of political competition betweenministerial cabinets at the end of negotiations, as well as discussions on the merits of budgetaryautonomy of the institution, also blocked the process. The negotiation network therefore startedwith serious handicaps: poor organization of the State; difference in views on contractualizationand autonomy framework; lack of structured concertation between the "Budget" component ofthe State and the SSPI, as well as an unstable political environment. On the other hand, to itsadvantage, it had operating rules accepted by all and good coordination between the SSPItogether and between the institutions and the "policy" component of the State.Guidance of agencies should therefore set up systems supporting coordination between theagencies themselves, between the State’s components and between the State and theagencies. This guidance should particularly focus on establishing a consensus on theautonomy and the contractualization of the agencies. Since the political and administrative 33
    • personnel change, this consensus should be recalled and even defended every time, toensure good collaboration of the players.The coordinator’s role cannot be deniedAlthough both theories begin with the principle that logically, the parties do not need anintermediary, recent theoretical discussions have nevertheless noted that it is better to delegatepart of the coordination to « outside » organizations. The principal-agent model even acceptsdelegating the monitoring to a third party for reasons of efficiency (Strausz, 1997) and theorieson coordination recognize that there is an advantage in having a central coordinator – this reducesthe cost of transactions between parties (Verhoest & Legrain, 2003). The parties must accept thecoordinator’s central role; it consists of four crucial jobs: establishing coordination rules,ensuring their implementation, stimulating inter-organizational relations and controlling thequality of relations. These jobs must of course be done in collaboration with the stakeholders.This function will be even more necessary when the process becomes increasingly complex. Forexample, for global negotiations that were very easy to organize, the role of the Social SecurityFederal public service was only to monitor and report on the discussions. Conversely, theprocedures for the signature of the contract proved to be very difficult to organize: for eachinstitution, copies of the contract plus a royal decree approving the contract had to be signed byseveral policy ministers, the minister of the budget and the minister of public service. Thatnumber of ministers involved and their identity varied from one SSPI to another, and thereforeseveral parallel sub-processes were involved that absolutely had to be coordinated to allow forpublication of the contracts on the same date. For this reason, this stage was entirely entrusted tothe Federal public service although logically, it fell under the competence of the ministerialcabinets.Consequently, it is better to have the agencies and the supervisory authority accept acentral coordination function, which cannot have hierarchical superiority over the agenciesunder any circumstances. This function should essentially be based on the expertise andforce of conviction of the coordinator and its nature could change with the (sub) dossiers. 34
    • ConclusionA dominant theory?Can we conclude that the principal-agent model is obsolete for organizing the guidance ofautonomous agencies? In fact, many hypotheses or affirmations in this theory can easily becontradicted in political-administrative reality. The principal-agent model starts with apessimistic vision that is something of a caricature with regard to relations between a supervisoryauthority and its agents. The political and administrative players are said to act in aMachiavellian way, trying to maximize their own interest. In addition, these relations do not takeaccount of the political aspect, the establishment of coalitions between principals and agents, thepossible presence of other agents and the fragmentation of the principal.The network theory is not free of criticism either. Unlike the principal-agent model, it tends to beexcessively positive and optimistic with regard to the motivations of the political andadministrative players. Driven by certain constraints and the general interest, the organizationsare said to have a natural tendency to work together and to establish common relational rules. Inpractice, relations between administrative organizations are not this cordial: interdependence,general interest and common objectives cannot prevent deep-seated differences or confrontationof different basic commitments. The allocation of budgetary margins gives rise to seriousconfrontation at both political and administrative levels. Nevertheless, it is true that neitheragencies nor the supervisory authority have an interest in a definitely blocking the dossiers underdiscussion. Sooner or later, a solution must be found, which may mean that the State pulls rankover its agencies.Good guidance of agencies has therefore to be based on a subtle mixture of the two theoreticalframeworks. It must be able to take account of individual channels and global channels,divergent interests, and coalition buildings. It must recognize the overriding position of the Statewhile establishing a context for a partnership relation and cooperation with its agencies, withoutundermining political responsibility and interest in the agencies. The components of the State 35
    • (and the agencies in the global discussions) must be encouraged to speak with a single voice,while providing systems of coordination and consultation that considers them to be full-fledgedpartners. A central coordination function should be created, but without installing a newhierarchy over the agencies.Theories to help the public sectorThis article and the establishment of a framework of negotiations are both demonstrations that thetheories developed in the context of administrative sciences and new public management can beused to create a framework and even to set up administrative procedures. Nevertheless, the useof such theories is subject to one condition: they must not be applied in a automatic way.Circumstances in the field of application, as well as sensitivities of the persons concerned, mustbe taken into account.As we have seen, the contracting parties have not always followed this framework. The objectivewas to give the parties a framework and principles for negotiations in order to maintain theircontractualization and the partnership spirit underlying them, and of course to launchcoordination on a firm, non-conflicting ground. Too dogmatic an application of the theories and astrict methodology could cause unnecessary friction and negative reactions from the contractingpartners, delaying (and even jeopardizing) any improvement of the system. Consequently it waspreferable to be flexible at times in the application of the principles, as long as the negotiationrespected the objectives set for it. The objective of a negotiation of a contractual relationship isnot perfect scientific quality – it is the conclusion of a contract without the State having to use itshierarchical power too often. 36
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