The Role of Social Value in Contracting
Professor Nickolay Gantchev
Professor of Finance
Warwick Business School
University of Warwick
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.
