Impact of Product Characteristics and Market Conditions on Contract Type: Use of Fixed-Price Versus Cost-Reimbursement Contracts in the U.S. Department of Defense. Issue 4 (1st October 2016)

• Record Type: Journal Article
• Authors: Kim, Yong Woon; Roberts, Alex; Brown, Trevor
• Is Part Of: Public performance & management review. Volume 39:Issue 4(2016)
• Page Start: 783
• Page End: 813
• Publication Date: 2016-10-01
• Subjects: cost-reimbursement contracts -- fixed-price -- market conditions -- product characteristics; Civil service -- Labor productivity -- Periodicals; Civil service -- Labor productivity -- United States -- Periodicals; Government productivity -- Periodicals; Government productivity -- United States -- Periodicals; Public administration -- Periodicals; Public administration -- United States -- Periodicals; Civil service -- Labor productivity; Government productivity; Public administration; United States; Periodicals; 351.05
• DOI: 10.1080/15309576.2015.1137765
• Languages: English
• ISSNs: 1530-9576

Abstract

ABSTRACT: Transaction cost economics is used to produce a conceptual framework that helps explain public-sector contract decisions. When a product is easy to specify, easy to produce, and there is a thick market of buyers and sellers, fixed-price contracts are more likely; when a product is difficult to produce, difficult to specify, and the market has few buyers and sellers, cost-reimbursement contracts are more likely. These arguments were tested with five years of data (FY 2004–2008) drawn from the Federal Procurement Data System (FPDS), the most comprehensive and largely untapped database on federal contracting practices. Over 2, 000 Defense Department contracts were examined, charting contract type (i.e., fixed-price vs. cost-reimbursement) across simple and complex products. The results confirm conventional wisdom about public sector procurement practice, at least within the Defense Department: product characteristics and market conditions drive the use of fixed-price and cost-reimbursement contracts. This research lays the foundation for research on contract outcomes by identifying factors that drive the use of different contract types and producing unique measures of product characteristics that are not currently available in the literature.