| Summary: | Contracts are promoted as a tool which governments can use to involve the private health care sector in the delivery of public sector services. In low and middle income (LMIC) countries they have been suggesteda s a useful meansb oth for involving the private sectora nd for controlling it. However, evidence from developed countries suggests that the nature of contractual relationships with the public sector can be highly complex and that they may not always operate as envisaged by marketbased economic theory. Very little evidence is available from the different setting of low or middle income countries. This research examined the nature of three different contractual relationships for primary care services in South Africa and Lesotho. A principally qualitative, case study approach, drawing on ideas from new institutional economics, was used to examine the broad context in which these contracts were set, and formal and informal controls upon their operation. A broad framework of factors for the analysis of contractual relationships was used throughout the study and to increase the generalisability of the case study findings. Theories about the varied shape and possible incompleteness of contracts were used as the basis for an examination of formal and informal controls on the operation of contracts in an LMIC setting. The contracts examined were all found to be incomplete and reliant on external factors to determine the way in which they operateda nd the natureo f the contractuarl elationship. Primaryc are services were observed to be both difficult to specify in a contract and very problematic to monitor. The role of factors such as market competition, the nature of the provider, informal monitoring, trust and dependence were each highlighted in the results of the case studies. The importance of taking such factors into account, and recognising the highly variable nature of contracts likely to arise in different settings, were key findings of the study. These findings support a more cautious approach to some of the expectations placed on contracting in low and middle income settings, but also highlight its potential value when approached appropriately.
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