Why Contracts Fail

Structural incompleteness in long-horizon agreements. Why even the best-drafted PPP contracts cannot specify their way to success.

SDGs:

The 60-Second Version

All long-term contracts are structurally incomplete. This isn't a drafting failure—it's a logical impossibility.

A 30-year infrastructure contract cannot specify responses to conditions that don't yet exist. Climate change, technological disruption, demographic shifts, political realignments—all create gaps that must be filled through renegotiation.

But renegotiation occurs under asymmetric conditions. The private party has operational knowledge, legal resources, and exit options. The public side faces political pressure to avoid visible failure. The result is predictable: every renegotiation transfers value from public to private.

Better contract drafting cannot solve structural incompleteness. Only governance architectures that anticipate incompleteness can create genuine alignment.

Why Contracts Cannot Be Complete

Unknown Unknowns

Future conditions that cannot be specified because they haven't been conceived

Example: Climate impacts, technological disruption, demographic shifts

Bounded Rationality

Cognitive limits on what negotiators can anticipate and specify

Example: 30-year contracts written by teams with 2-year tenure

Strategic Ambiguity

Deliberate vagueness that enables deal closure at cost of future conflict

Example: 'Reasonable' maintenance standards, 'material' changes

Verification Costs

Some contingencies too expensive to monitor even if specifiable

Example: Quality standards that require expert assessment

Implications

Contracts Are Not the Answer

More detailed contracts don't solve incompleteness—they just move the ambiguity to higher-order terms. The architecture must change.

Governance Over Contracts

Regenerative frameworks address incompleteness through governance architecture—not contract specification. Purpose governs gaps.

Part of the PPP Series

This paper establishes why contracts cannot solve PPP failure, pointing toward architectural alternatives.

Paper 2: Temporal Asymmetry

Why political cycles destroy infrastructure value

Paper 4: Market Exchange Constitution

Pre-governing conditions for regenerative markets

Read the Paper

Explore the full analysis of structural incompleteness in long-horizon contracts.

View Paper

Commitment Execution Program

How to design commitments that survive incompleteness through structural binding.

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