A Model for Determining Optimal Governance Structure in DoD Acquisition Projects in a Performance-Based Environment

Abstract

Product acquisition and sustainment have traditionally been separate and not necessarily equal concerns in defense acquisition. To reconcile this deficiency, the 2001 Quadrennial Defense Review (QDR) proposed a modernization of the defense acquisition process that resulted in the adoption of Performance-Based Logistics (PBL), which integrates a performance-based environment for both acquisition and sustainment. The basic tenets of PBL suggest that the governance structure used must address the potential long-term nature of the relationship between the government and suppliers by integrating more collaboration and adaptability into the contractual mechanism. Knowing this, the ultimate challenge for a contractor is being able to understand the relationship they have with the government and be able to evaluate whether the governance structure chosen permits, inhibits, or prohibits the government and contractor from achieving desired outcomes. The purpose of this paper is to present a conceptual model that describes the conditions under which defense acquisitions should be structured as either being more short-term, transactional exchanges; long-term relational exchanges; or plural form (which recognizes the complementary nature of contracts and cooperative norms). Using this conceptual model coupled with the logic provided by Transaction Cost Theory (TCE), we should be able to better explain whether the government-contractor relationship has a significant impact on the outcome of the contract. For those contracts that fail as a result of endogenous conditions, we realign those programs with alternative contract types and alternative governance structures that are more suitable for the conditions of those programs. We conclude this study with a discussion of how managers should match contract type with optimal governance structure and a preliminary empirical examination of the conceptual model.