Relational contract theory was created and developed in the American private law of contract. It is a theory steeped in socio-legal norms aimed at a more discretionary and flexible approach to contracts between parties. The proposal has been made that although created in private law, relational contract theory can form the theoretical framework on which public procurement matters as a form of administrative law are dealt with in South Africa. In other words, it is a conceptual tool for public procurement to function in as part of public law. This is based on the proposition that the current South African public procurement law is treated with private law rules and remedies which prove to be inadequate in a public law context. Moreover, the doctrine of privity of contract demanded by the private law of contract thwarts the public interest in an area of law which is fuelled by the public purse. Therefore, the private law of contract as currently applied in public procurement law in South Africa is inadequate and provides for a stricter, less flexible legal regime than that which is required.
Relational contract theory begins with the concept of exchange which has been defined as the act of giving someone a commodity with the expectation that something of value will be received in return (MacNeil, Cases and Materials on Contracts). Our economy is based on economic exchanges and many of our social values are expressed in the ways in which we respond to these exchange transactions which are often done by way of concluding contracts. Contracts, in turn are relations among parties to the process of projecting exchange into the future (MacNeil, The New Social Contract).
The law provides stability in society and facilities co-operations amongst parties. The law thus is or should be an indication of the customs and norms in terms of which human affairs such as contracts in the public sector are conducted. Public procurement as a form of administrative law consists of an exchange between the government and private parties which involves a broad spectrum of interests and not only the law. Any regulation of public procurement should thus recognise social and economic imperatives in its daily functioning which impact on the law which regulates it.
Aside from specific public procurement provisions, the South African Constitution in general requires norms such as efficacy, transparency, fairness, accountability, friendly relations and consultation when performing constitutional duties which include administrative actions. These norms are akin to that prescribed by relational contract theory which effectively provides a set of norms in terms of which parties in the public sector conduct themselves in long-term exchange relationships. These are norms such as mutuality, flexibility, consent, planning, solidarity and restraint of power.
To this end, relational contract theory may provide the conceptual tool in terms of which not only public procurement law but public law matters in general can be regulated and interpreted. The South African Constitution has been said to be relational document based on constitutional norms akin to those of relational contract theory. The same can be said of the Constitution of India which is based on norms such as reasonableness, lawfulness and fairness. Both South Africa and India have created a Constitution in order to redress the inequalities of the past. Therefore, both constitutions are based on norms of equality, freedom and justice (Preamble, Indian Constitution). Like the South African Constitution, the Indian Constitution makes reference to the advancement of previously disadvantaged members of society through employment from the government, including public procurement procedures and contracts (Articles 15(3), 16(1), (4)). Furthermore, the public interest in all matters involving the government is emphasised (Article 19(6)). The Constitution further requires equal opportunities for all (Article 38(2)) and promotes a co-operative society, (Article 43B) harmony and brotherhood (Article 51A(e)). It has been noted that administrative law in India relates to transparent, open and honest governance which is people-friendly. Although these norms are of course required by the Constitution, a legal framework for public law matters which explicitly requires equality between government and private parties, restraint of power by the government, equal treatment of government employees and contractors and a duty to solve disputes amicably may go a long way in ensuring that constitutional imperatives are complied with. These norms and therefore the spirit of the Indian Constitution are synonymous with those of relational contract theory. Merely a relational theory or law instead of a relational contract theory would be better suited to administrative action since no formal contract is necessarily concluded.
Calls have been made for the incorporation of relational contract theory into the construction industry of India. Research has been done on the need for a relational theory on which to base the actions of construction contractors (Patel et. al., Relational Contracting Philosophy; Tawalare & Singh, Relational Contracting Philosophy for Challenges of Indian Constitution Industry ). It is submitted that the same theory can be applied in Indian administrative law.
Administrative law in both South Africa and India are based on the Constitution, statutes, subordinate legislation and judicial decisions. The control and exercise of public power must be in line with the Constitution and its norms in both countries. Therefore, as in South Africa, relational contract theory may provide a legal framework in which public law matters in India can be regulated.