The Role of Social Value in Contracting
44 Pages Posted: 22 Nov 2022
Date Written: September 07, 2024
Abstract
Using over 1.25 million procurement contracts valued at over $250 billion, we study how contractors’ environmental and social (E&S) performance influences contract terms. Our findings show that E&S incidents lead to an 11-13% reduction in the amounts and a 12-14% decrease in the duration of new contracts. Additionally, contracts of poor E&S performers are 31% less likely to be renegotiated, and if renegotiated, are granted less favorable changes in amounts and durations than firms with clean E&S records. This suggests that firms with poor E&S performance are more rigorously monitored and penalized rather than given contract modifications to accommodate heightened E&S risks.
Keywords: Contracts, Public procurement, ESG performance, Environmental and social impact, Corporate monitoring
JEL Classification: H57, G38, G34, M14
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